Gas prices gnaw at consumer confidence  

[June 08, 2007]  WASHINGTON (AP) -- Consumer confidence tumbled to a 10-month low as gyrating gasoline prices and persisting problems in the housing market gnawed at people's sense of economic well-being.

The magnitude of the drop shown in the latest RBC Cash Index was surprising given the healthy state of the nation's job market, which is usually an important factor coloring consumers' perceptions of how the economy and their own financial fortunes are faring.

But nagging worries about gasoline prices, if the yearlong housing slump will worsen and drag down home prices further, and whether the economy will, in fact, snap out of its sluggish spell, are taking a toll on confidence, economists explained.

"There is too much uncertainty. That is the mindset of consumers right now," said Brian Bethune, economist at Global Insight.

"Consumers are kind of in a schizophrenic zone, where the job market is good, they're getting reasonably good pay increases, but at the same time they are getting hit with higher gasoline prices and the housing market is still not looking good," Bethune added.

Facing uncertainties, some consumers are feeling angst, watching their budgets more closely and turning cautious, he said.

The RBC Cash Index showed that consumer confidence dropped to 81.4 in June. That was weaker than May's 87.1 and was the worst showing since last August, when fears about record-high energy prices gripped consumers. The index is based on the results from the international polling firm Ipsos.

The ebbing in confidence comes as the public gave President Bush a job-approval rating of just 32 percent in June, matching an all-time low in a separate AP-Ipsos poll. On the economy, only 37 percent approve of his performance, tying a record low set in November 2005.

Consumers' growing uneasiness comes as the economy has endured a nearly yearlong sluggish spell -- mostly reflecting troubles in the housing and automotive industries. Economic growth nearly stalled in the first three months of this year, logging a pace of just 0.6 percent, the worst in more than four years, the government reported last week.

Still, Federal Reserve Chairman Ben Bernanke predicts the economy will rebound. Private forecasters expect growth in the current April-to-June quarter anywhere from 2.3 percent to beyond a 3 percent pace.

Yet consumers continue to feel anxious about the future.

A measure tracking people's sentiments about how the economy and their own finances will unfold over the next six months clocked in at 32.2 in June, a weak showing. That followed a reading of 24.3 in May, which had marked a nine-month low.

People's attitudes about current economic conditions sank to 96.8 in June, compared with 113.2 in May.

Gasoline prices in early June came to $3.16 a gallon nationwide, the Energy Department says. That was a bit of an improvement from the $3.21 a gallon seen at the end of May but still packed a wallop to consumers' wallets and pocketbooks.

The anticipated rebound in economic growth in the current quarter is expected to be powered mostly by businesses ramping up spending and investment after clamping down in the first quarter. Consumers whose brisk spending prevented the economy from stalling out altogether in the first quarter are expected to be more subdued.

There was a sense of that Thursday when major retailers reported only modest sales in May following a dismal showing in April. The world's largest retailer, Wal-Mart Stores Inc., was among some of the merchants with disappointing results.

Consumer spending does account for a big slice of overall economic activity. Because of that, economists keep close watch on confidence barometers for clues about people's willingness to spend.

Economists believe high energy prices are one factor turning some consumers cautious. Another: lingering problems in housing, where weak home values are making some people feel less wealthy. And, those with spotty credit histories are having trouble making mortgage payments.

"Households are feeling the strain," said Greg McBride, a senior financial analyst at Bankrate.com. "There seems to be a lot of concern about debt and managing those monthly obligations."

An index looking at people's sentiments about investing was 86.1 in June, a sharp drop from 107.5 in May.

Despite some unsettling feelings about various aspects of the economy, consumers felt better about the jobs climate. A jobs measure rose to 126.9 in June, up from 123.8 in May.

The government reported last week that employers in May nearly doubled the number of jobs they added to the economy; the unemployment rate held steady at relatively low 4.5 percent.

The overall confidence index is benchmarked to a reading of 100 on January 2002, when Ipsos started the survey.

The RBC consumer confidence index was based on responses from 1,000 adults surveyed Monday through Wednesday about their attitudes on personal finance and the economy. Results of the survey had a margin of sampling error of plus or minus 3 percentage points.

[Text copied from Associated Press file]