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Consumer Sentiment Falls To Lowest Level in 28 Years

Reuters
Friday, 16 May 2008 | 10:14 AM ET

U.S. consumer confidence tumbled to its lowest in 28 years this month, a survey showed Friday, as short-term inflation expectations hit their highest since the stagflationary early 1980s.

The news heightens the dilemma for the Federal Reserve, which has bet that slowing economic growth will tame inflation pressures that are building up.

AP

The Reuters/University of Michigan Surveys of Consumers said its preliminary index of confidence fell to 59.5 in May, its lowest since June 1980. In April it was 62.6.

"Consumer confidence continued to slip in early May due to surging food and fuel prices," the Surveys of Consumers statement said. "Record numbers of consumers viewed the economy in recession and saw little hope of recovery anytime soon."

This was well below economists' median expectation of a reading of 62.0, according to a Reuters poll.

One-year inflation expectations surged to 5.2 percent -- their highest since February 1982 -- from 4.8 percent in April.

Also worrying for policymakers at the Federal Reserve, five-year inflation expectations hit their highest since August 1996, edging up to 3.3 percent from April's 3.2 percent.

The inflation measures challenge the Fed's view that soaring commodity prices have not yet led to an increase in long-term inflation expectations.

Coupled with the concerns about growth, the report also fuels worries that the U.S. is sliding into a period of stagflation like the late-1970s and early 1980s, characterized by a sluggish economy and accelerated price growth.

The index of consumer expectations came in at 51.7 in May, the lowest since October 1990, amid the runup to the first Gulf War. In April it was 53.3.

The Surveys of Consumers also said the data indicate that consumption growth is likely to be 1 percent in 2008, "with the pace weakening in late 2008 and early 2009."

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