U.S. Consumers Taking Gas Prices in Stride
Friday June 9, 7:59 am ET
By Jeannine Aversa, AP Economics Writer
American Consumers Confident About Economy in Spite of High Gas Prices and Interest Rates
WASHINGTON (AP) -- Consumer confidence in the economy rebounded over the month, suggesting that people are taking still-elevated gasoline prices and the specter of even higher borrowing costs in stride.
The RBC CASH Index, based on results from the international polling firm Ipsos, showed confidence snapped out of the doldrums and clocked in at 84.1 in early June. That was a big improvement from May's reading of 67.1, a seven-month low.
June's number marked a return to a more normal reading for the confidence barometer. A year ago, consumer confidence stood at 84.
"In spite of high energy costs and all the uncertainties around them, consumers are holding in there. It's still a decent economy," said Joel Naroff, president of Naroff Economic Advisors. "Consumers seem to be weathering a lot of storms out there."
Economists were especially encouraged that consumers' attitudes brightened because they viewed it as a sign that people are holding up fairly well not only to high energy prices but also to some other recent turbulence.
Federal Reserve Chairman Ben Bernanke issued a stern inflation warning on Monday that was seen as a strong signal that interest rates will go up again later this month. Bernanke's message has sent stocks swooning for three days in a row. Stocks recovered from an earlier plunge to close mixed Thursday.
Information for the index was collected Monday through Wednesday.
The rebound in confidence also comes after a government report, issued last week, showed job creation slowed dramatically in May to 75,000, the fewest new positions in seven months.
Even though the jobless rate dipped to 4.6 percent, a five-year low, economists viewed the employment report as more evidence that overall economic growth, which barreled ahead in the opening quarter of this year, is now slowing.
The economy grew in the first quarter at a 5.3 percent pace, the fastest spurt in 2 1/2 years; It is expected to moderate to half that pace -- around 2.5 percent -- in the April-to-June quarter, analysts said.
Even though consumers' confidence improved in early June, many Americans have concerns about President Bush's economic stewardship. Sixty percent disapprove of Bush's handling of the economy, according to an AP-Ipsos poll.
Analysts track consumer confidence for clues about consumers' willingness to spend, an important force shaping overall economic activity.
So far, most shoppers haven't been daunted by high gasoline prices, which have topped $3 a gallon in some areas. Major retailers last week reported strong sales for May. The big exception: Wal-Mart Stores Inc., whose lower-income customers are feeling the biggest pinch from prices at the pump.
The rebound in consumer confidence buttressed economists' forecasts that economic growth will slow modestly, not dramatically, in coming months.
"It is a hopeful sign that we won't ebb too far and will get back to a pace of growth that is positive but not so strong as to exacerbate inflation," said Carl Tannenbaum, chief economist at LaSalle Bank.
The confidence index is benchmarked to a reading of 100 on January 2002, when Ipsos started the gauge.
Showing the biggest over-the-month improvement was consumers' expectations about the next six months -- including the overall economy's prospects as well as conditions where they live or work and their own financial positions.
That expectations measure rose to 40.4 in June, from a very low reading of 6.3 in May. This gauge turned negative for the first time ever in September highlighting consumers' anxiety in the wake of the devastating Gulf Coast hurricanes. It had been slowly showing some signs of improvement until the plunge in May. A year ago, this measure stood at 37.2
Despite last week's mostly disappointing employment report for May, consumers' feelings about the jobs climate were much more upbeat. This jobs barometer jumped to 124.1 in June. That was up from 110.3 in May and 119.6 in June 2005.
Consumers' attitudes about current economic conditions also improved, with a reading of 99.4 in June compared with 90.3 in May. A year ago, this measure was at 100.8.
Another gauge tracking consumers' sentiments about making a purchase, saving and other investment decisions climbed to 88.4 in June, up from 79.9 in May. In June 2005, this measure stood at 93.
The RBC consumer confidence index was based on responses of 1,003 adults surveyed Monday through Wednesday about their attitudes on personal finance and the economy. Results of the survey had a margin of error of plus or minus 3 percentage points.
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