Americans grew gloomier about the economy in May
NEW YORK – Americans grew much gloomier about the economy in May, causing a critical measure of consumer confidence to suffer its biggest decline in eight months and ending a period of steady optimism.
Worries about jobs, housing and the stock market rattled consumers, even though gas prices are falling. The latest figures suggest Americans will need to see more encouraging economic signs before their concerns start to dissipate.
The Conference Board, a private research group, reported Tuesday that its Consumer Confidence Index fell to 64.9, down from a revised 68.7 in April. Analysts had expected the index to climb to 70.
The May figure, which represents the biggest drop since October, when the measure fell about 6 points, is now at its lowest level since January.
Americans are still worried about slow hiring, declining home values, the stock market and a worsening European economy that they fear will negatively affect the U.S.
"Consumers were less positive about current business and labor market conditions, and they were more pessimistic about the short-term outlook," said Lynn Franco, director of economic indicators at the Conference Board.
Consumer confidence is widely watched because consumer spending accounts for 70 percent of economic activity. May's figure is significantly below the 90 reading that indicates a healthy economy. The measure hasn't been near that level since December 2007. But the latest reading is still well above the 40 figure reached last October and the all-time low of 25.3 in February 2009.
The consumer confidence measure has zigzagged so far this year, dropping in January, rising in February and holding nearly steady after that. Analysts were hoping a slight rise in May would give some credence to the idea that the economy is stabilizing.
Instead, the data, which was based on a survey conducted from May 1 through May 16 with about 500 randomly selected people nationwide, suggests that "the pace of economic growth in the months ahead may moderate," Franco said.
Mark Vitner, an economist at Wells Fargo, said May's reading is disappointing but consistent with the sluggish recovery so far.
"In some ways, it's a microcosm of the whole economic recovery," he said. "Every once in a while hopes are raised that things are getting better, and then the bottom seems to fall out again."
Analysts say the inconsistent job market is preventing Americans from being more upbeat.
Hiring picked up earlier in the year, but slowed in March and April, possibly indicating that the economy's momentum faded in early spring. Economists say a warm winter led employers to move up some hiring and accelerate other activity that normally wouldn't occur until spring.
A clearer picture of the jobs market will emerge Friday, when May employment figures are due. The unemployment rate is expected to remain at 8.1 percent for May with an increase of 160,000 jobs, according to FactSet. That's above April's gains but below the growth pace set during the winter.
Dana Berry, a public-relations manager in Arkansas, says she knows people who are still searching for a job, but she has seen some positive signs, like her oldest son landing a job after graduation. Gas prices are more of a concern, she said.
Gasoline has dropped 27 cents per gallon since early April. The national average was $3.67 per gallon at the start of the Memorial Day weekend. Some experts say it could fall as low as $3.50 by July 4.
"I travel quite a bit, so fuel and airline expenses are something I watch closely," Berry said. "It's a relief when the price of fuel goes down."
Mark Olwick, a designer at Microsoft in Seattle, said he still has concerns about the economy.
"I'm cautiously more confident," he said, "but there is still significant work to be done, especially around banking reform, job creation and gas price speculation."
He said he has not seen gas prices fall in the Pacific Northwest, and that led him to postpone traveling.
"I'd love to have taken a road trip over the Memorial Day weekend, but when it costs me $70 for each tank of gas, there's just no way I could afford it," he said.
Adding to Americans' job concerns, the stock market in May is on track for its worst month since last September. The S&P 500 is down 4.6 percent for the month.
But on Tuesday, Wall Street seemed to shrug off the report. The Dow Jones industrial average was up about 68 points by mid-afternoon.
That indicates investors may be more confident in the economic recovery than consumers, said John Lonski, chief economist of Moody's.
"Financial markets are giving short shrift to the drop in consumer confidence," Lonski said.
Investors may have been paying closer attention to the much sunnier Thomson Reuters/University of Michigan index of consumer sentiment that came out Friday. That index, which is also considered a measure of consumer confidence, jumped to 79.3 in May for its best reading since October 2007 — two months before the recession began.
The biggest reason for the difference, economists said, was probably timing: The Conference Board finished its survey May 16, while the University of Michigan survey continues throughout the month. That means the Conference Board didn't capture all the recent declines in gas prices, and it finished just as worries about Europe's financial crisis hit a crescendo, ahead of an international summit.
The markets could also have played a role. The Dow fell sharply in the first half of the month, then leveled off after May 16.
The timing "does make a difference, especially in a month where we were riding a roller-coaster," said Diane Swonk, chief economist at Mesirow Financial.
Meanwhile, recent signs that an economic slowdown is spreading beyond Europe to fast-growing countries like China have raised fears that U.S. companies could pull back on hiring as demand weakens for their products. The housing market also is still weak, and many consumers are seeing their retirement investments shrink because of falling stock prices.
Associated Press Writer Christopher S. Rugaber in Washington contributed to this report.