Consumer Confidence Falls In June

Tuesday, June 26th 2007, 10:40 am
By: News On 6

NEW YORK (AP) _ Two pillars of the economy _ consumer confidence and the housing market _ sent off warning signs on Tuesday that could mean lower spending during the critical fall shopping season, particularly if the labor market weakens.

Both pieces of the economic puzzle dropped into a market that is worried about inflation, interest rates and economic growth ahead of a two-day meeting of the Federal Reserve that begins Wednesday. The Fed is expected to keep interest rates steady, but investors are watching for clues about future moves.

In midmorning trading, the Dow Jones industrial average rose only slightly as investors were unnerved about the larger-than-expected drop in consumer sentiment.

The New York-based Conference Board said that its Consumer Confidence Index fell almost 5 points to 103.9, down from a revised 108.5 in May, reaching the lowest level since August 2006 when the reading was 100.2. Analysts had expected a reading of 106.

New home sales also dropped in May for the fourth time in the past five months, according to government figures, in another sign of continued weakness in the housing market

``A perceived softening in present-day business and employment conditions are the major reasons behind this month's pullback in confidence,'' said Lynn Franco, director of The Conference Board Consumer Research Center in a statement. ``Looking ahead, consumers remain subdued about short-term economic prospects. All in all, the glass remains half empty and half full.''

The Present Situation, which measures how shoppers feel now about economic conditions, fell to 127.9 from 136.1 in May. The Expectations Index, which measures shoppers' outlook for the next six months, edged down 87.9 from 90.1.

Economists closely monitor confidence since consumer spending accounts for two-thirds of all U.S. economic activity. The nation's retailers have had sluggish sales amid a weaker housing market and volatility in gasoline prices.

The Commerce Department reported Tuesday that sales of new single-family homes fell in May by 1.6 percent to a seasonally adjusted annual rate of 915,000 units. U.S. home prices fell for the 17th month in a row with all regions showing the impact of the housing slowdown, according to a housing index released Tuesday by Standard & Poor's.

On Monday, the National Association of Realtors said existing home sales declined in May by 0.3 percent to 5.99 million units. It also reported the slowest existing home sales in four years; housing inventories rose by 5 percent to the highest level since 1992; and the median home price declined for a record 10th consecutive month.

The Conference Board _ derived from responses through June 19th _ showed consumers' appraisal of the job market was less upbeat than it has been.

Those saying jobs are ``hard to get'' inched up to 21.1 percent from 19.7 percent. Those claiming jobs are ``plentiful'' fell to 27.0 percent from 29.1 percent in May.

A healthy outlook for jobs has been helping consumers overlook the weakness in housing and higher gas prices. But there have been worrisome signs recently that the employment market is fraying at the edges.

On Thursday, the Labor Department reported that unemployment claims rose to the highest level since mid-April. Analysts said the large bump up in jobless claims did not change their view that the labor market remains healthy.

But the Conference Board's report revealed consumers are not as sanguine. Those expecting more jobs in the months ahead edged up to 14.0 percent from 13.6 percent, while those anticipating fewer jobs also increased to 17.0 percent from 15.6 percent.