Consumer confidence sinks over the past month

Friday, May 6th 2005, 9:26 am

By: News On 6

WASHINGTON (AP) _ Consumer confidence sank over the past month as surging energy bills and higher borrowing costs led people to worry about inflation and the condition of the economy generally.

The AP-Ipsos consumer confidence index came in at 78.2 in May, according to figures released Friday. That was down sharply from the showing of 84.5 registered in April and represented the lowest reading since October 2003.

May's showing also suggests that consumers aren't feeling as good about the economy's prospects as they did a year ago, when the index clocked in at 87.4.

The AP-Ipsos confidence index is benchmarked to a 100 reading on January 2002, when Ipsos started the gauge.

Economists keep tabs on consumer confidence to try and gauge people's willingness to spend, a key ingredient for the country's economic health. Consumer spending accounts for roughly two-thirds of all economic activity.

The newest reading on consumer confidence comes as the economy has recently flashed signs of slowing. The economy grew at a 3.1 percent annual rate in the first three months of the year, its most sluggish showing in two years. High energy prices cramped growth by making consumers and businesses cautious in their spending and in their investments, economists said.

Oil prices surged in early April to $57.27 a barrel, a record-high closing price. They have retreated somewhat since then. Gasoline prices are expected to remain above $2 a gallon during the busy summer driving season.

Some economists believe economic growth could slow further in the current April-to-June quarter.

While growth is slowing on one hand, inflation is rising on the other. That's also putting a strain on consumers' pocketbooks and eating into their paychecks.

To combat inflation, the Federal Reserve on Tuesday boosted a key short-term interest rate by one-quarter percentage point to 3 percent. It marked the eighth increase since the Fed began to tighten credit last June.

In response to the Fed's latest rate hike, commercial banks raised their prime lending rates by a corresponding amount to 6 percent, the highest since 2001. The prime rate is a peg for many short-term consumer loans; credit cards and home-equity loans are often tied to the prime lending rate.

A measure that tracks consumers' feeling about making a purchase, saving and other investment decisions dropped to 75.8 in May, from a reading of 87.4 in April. That contrasts sharply with May of last year, when this investment barometer clocked in at 93.6.

A gauge of consumers' sentiments about current economic conditions also posted a steep decline, falling to 83.2 in May. That compared with a reading of 92.7 in April and 95.7 in May of last year.

The bumpy stock market also may be weighing on people's feelings about current economic conditions as their decisions about investments.

A measure of consumer attitudes about economic expectations over the next six months, including conditions in areas where people live or work and their own financial positions, also showed a decline in May, to 48.1. That was down from 51.3 in April and 62.5 in May of last year.

Meanwhile, a reading on consumers' feelings about jobs came in at 118 in May, up slightly from 116.2 in the previous month.

May's overall consumer confidence index reading was based on the results of a survey of adults about their attitudes on personal finances and the economy. Results of that survey, conducted Monday through Wednesday, had a margin of error of plus or minus 3 percentage points.