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Consumer Confidence Plunges to 16-Year Low in May

Reuters
Tuesday, 27 May 2008 | 10:08 AM ET

U.S. consumer confidence plunged unexpectedly to its lowest in 16 years in May as rising gasoline costs and falling home prices made Americans nervous about the future, a survey showed.

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The Conference Board, an industry group, said its monthly measure of consumers' mood fell to 57.2 from 62.3 in April, well below Wall Street's median estimate of 60.0.

"There is a fear the economy is in a recession or going into one and people may find their jobs in jeopardy," said David Coard, head of fixed-income sales and trading at The Williams Capital Group in New York. "When you talk to people on the street they seem to be really being squeezed at the pump and the supermarket while their income isn't keeping up."

The index has dropped by almost half since last July, when housing market troubles triggered the most severe credit crisis in at least a decade.

At the same time, inflation expectations rose to an all-time high 7.7 percent, well above April's 6.8 percent.

The pain was felt across the board, with consumers worried about both what is happening now and what might be to come.

The present situation index dropped to 74.4 from 81.9, while the expectations barometer dived to 45.7 from 50.0.

Other reports out on Tuesday suggested the housing market will not get better any time soon.

New home sales rose but only after downward revisions to the prior month, and remained near their weakest in more than 15 years.

Meanwhile prices of single-family homes plunged a record 14.1 percent in the first quarter from a year earlier, marking a pace five times faster than the last housing recession, according to the Standard & Poor's/Case Shiller index.

"Weakening business and job conditions coupled with growing pessimism about the short-term future have depleted consumers' confidence in the overall state of the economy," said Lynn Franco, director of The Conference Board Consumer Research Center.

On Friday, a survey of consumer sentiment showed that twice as many Americans expect the value of their homes to fall in the next 12 months than a year ago, while price rises in the next five years will fail to keep pace with inflation.

The Reuters/University of Michigan report showed the grim sentiment among consumers, who have been hit hard by the worst housing slump since the Depression, record energy costs and a shrinking job market.

The results showed the proportion of respondents who expect their home's value to decline during the year ahead rose to 28 percent.

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