Consumer confidence fell to the lowest level in five years in April, as Americans were buffeted by rising gasoline and food prices and a slowing job market, according to a recent survey.
The Conference Board’s Consumer Confidence Index, which is based on a survey of 5,000 households through April 22, dipped to 62.3, its lowest level since the beginning of the Iraq invasion in 2003. It stood at 65.9 in March.
The April report marked the eighth decline in the confidence index in the last nine months.
Fed Action
In a spot of particularly bad news for the Federal Reserve, which cut interest rates again to stimulate the economy, the survey found shoppers betting on higher inflation ahead.
The Fed action, after a two-day meeting last week, pushed the federal funds rate down to 2 percent, the lowest level since late 2004.
The index’s gauge of inflation expectations jumped to their highest reading since September 2005, when Hurricane Katrina disrupted energy supplies.
Fed officials have been cutting a key interest rate from 5.25 percent since last September in an effort to calm financial markets and stabilize the broader economy.
Prices Rise
As oil, food, and other prices rise, there is increasing concern within the central bank that further rate cuts could stoke unwelcome levels of inflation.
The Fed considers inflation expectations an important measure of price pressures.
“The dramatic declines in the various confidence measures are capturing what may be the most pessimistic public dialog on the economy since the early 1980s,” says Mike Englund of Action Economics. “Soaring food and gasoline prices are both clobbering confidence and boosting inflation fears by the public at large.”
The percentage of consumers calling business conditions “bad” rose to 26.7 percent from 25.5 percent. Nearly 28 percent said jobs are hard to get, up from 24.5 percent in March.
Consumers were more pessimistic about the job market and the share of them planning to take a vacation in the next six months plummeted to a 30-year low.
Growth Slows
The weakness in the numbers “suggests that not only has the feeble level of growth in the first quarter spilled over into the second quarter, but that economic conditions may have slowed even further,” said Lynn Franco, director of The Conference Board Consumer Research Center.
The economy is increasingly becoming a political issue. President Bush on Tuesday held a news conference, urging Congress to address rising prices.
Democrats and Republicans traded charges on Capitol Hill about which party was more responsive to consumer issues.
Later this week, Senate Joint Economic Committee Chair Charles Schumer, D-N.Y., will hold a hearing on rising food prices.
“We need, right now, to come together as Republicans and Democrats to do something about these high gas prices, because they are severely affecting the economy,” said Sen. John Ensign, R-Nev.
