Consumer Sentiment Battered by High Fuel, Housing Slump

By Jennifer Yousfi
Managing Editor

High commodity costs, a weakening employment situation and the continued housing slump combined to push consumer sentiment down to its lowest level in a quarter-century.

For the third straight month, the Reuters/University of Michigan sentiment index registered a decline. The index is down to 62.6, from 69.5 the prior month. Economists had expected the index to be a bit higher at 63.0.

"The recent acceleration in the loss in confidence indicates a longer and potentially deeper recession," survey director Richard Curtin said. "All households now anticipate smaller income gains and larger price increases, as just one-in-five now expect their overall finances to improve during the year ahead, the least favorable reading in more than a quarter century."

Story continues below...

The index is at its lowest point since March 1982's reading of 62.0, when stagflation concerns - high inflation coupled with low growth - were still taking a toll. Due to surging prices on food and fuel and an economy that has already shed 250,000 jobs so far this year, consumer sentiment is taking a beating.

"Consumers are feeling the pinch, not only from the labor market, but also from prices," Aaron Smith, an economist at Moody's in West Chester, Pa., said in a Bloomberg Television interview. "There's a squeeze on incomes from two sides."

Story continues below...

And the nationwide decline in home values cannot be ignored. Home prices are down 10% across the country, according to the S&P Case-Shiller home-price index, making consumers less likely to spend as they see their home equity levels dropping.

"Never before in the long history of the surveys have so many consumers reported hearing news of unfavorable economic development as in the April survey," the report read.

Nearly nine in 10 consumers thought the economy was now in recession, Reuters/University of Michigan said, Reuters reported.

News and Related Story Links: