nearly 16-year low

Inflation fears push consumer confidence to lowest since '92
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"When you talk to people on the street they seem to be really being squeezed at the pump and the supermarket while their income isn't keeping up."
--David Coard, Williams Capital Group





Yahoo! Buzz Digg Newsvine Reddit FacebookWhat's this?By Sue Kirchhoff, USA TODAY
WASHINGTON — U.S. consumer confidence this month plunged to a nearly 16-year low, while their inflation expectations hit a record high. It's more bad news for an economy struggling with soaring food and energy prices and a historically broad housing downturn.
The New York-based Conference Board said Tuesday that its consumer confidence index declined for a fifth-consecutive month, to 57.2 from 62.8 in April. That's the lowest reading since October1992.

"Weakening business and job conditions, coupled with growing pessimism about the short-term future, have further depleted consumers' confidence," said Lynn Franco, director of the Conference Board's Consumer Research Center.

"Consumers' inflation expectations, fueled by increasing prices at the pump, are now at an all-time high and are likely to rise further," Franco said. The Conference Board's inflation-forecasting numbers go back to 1987. The index is based on a survey of 5,000 households. This month's data were collected through May 20.

The share of consumers calling business conditions "bad" jumped to 30.6% from 26.5% in April.

FIND MORE STORIES IN: Federal Reserve | Lynn Franco | Consumer Research Center | Ian Shepherdson of High Frequency Economics
The slice of consumers expecting business conditions to deteriorate during the next six months rose sharply to 33.6% from 27.4%. The share who expect their incomes to increase dipped to 13.4% from 15.5%.

The number of consumers planning to buy homes or autos fell, with the number of prospective home buyers at the lowest since 1982.

"The combination of falling home prices, soaring food and energy prices, the credit crunch and the worsening labor market is killing consumers," said Ian Shepherdson of High Frequency Economics. He called the measure of consumers' expectations of conditions in the next several months — down 8.6% to 45.7 — "stupefyingly awful."

Food inflation is surging at the fastest rate in decades, and gasoline prices have reached $4 a gallon in many areas. The job market has slowed, and incomes are flat. Economists say high prices may blunt some of the hoped-for stimulative effect of federal income tax rebates that are being mailed to millions of households.

Rising inflation expectations are particularly worrisome for the Federal Reserve, and make it more certain that the central bank will remain on hold, after an aggressive chain of interest rate cuts designed to help economic growth. The Fed next meets on interest rates in late June.

Fed officials pay close attention not just to prices, but to consumers' inflation expectations.

If Americans begin to expect inflation to escalate, it can turn a one-time bump in prices into a wider wage-and-price spiral that is difficult to combat. So far, the slowing economy has held wages down.

Moody's Economy.com told clients that consumers have not been as concerned about the economic outlook since 1978.

"They are particularly worried about the outlook for their incomes, which does not bode well for spending," Economy.com said.