Confidence Index Drops

Consumer confidence soured in May as Americans fretted about the economy’s future and the job outlook. The drop in a widely watched barometer of sentiment was the steepest since hurricanes pummeled the Gulf Coast last year, increasing worries about the health of consumer spending.

The New York-based Conference Board said Tuesday that its consumer confidence index fell almost seven points to 103.2, down from the revised 109.8 in April. Still, May’s reading was better than the 100.9 expected by analysts.

The decline stalled a rebound since November in the aftermath of the Gulf of Mexico hurricanes, which sent the index down 18 points in September. The exception was a dip in February when short-lived pessimism over the job market hurt consumer sentiment.

“Consumer confidence, which reached a four-year high in April, lost ground in May,” Lynn Franco, director of New York-based Conference Board Consumer Research Center, said in a statement. “Apprehension about the short-term outlook for the economy, the labor market and consumers’ earning potential has driven the expectations index down to levels not seen since the aftermath of the hurricanes last summer.”

Still, Franco said, consumers rate current conditions favorably.

The expectations index, which measures consumers’ outlook for the next six months, fell to 83.7 in May from 92.3 in April. The number of consumers expecting their incomes to rise in the months ahead fell to the lowest level in three years, the survey reported. The present situation index, which measures how shoppers feel about economic conditions, slipped to 132.5 from 136.2.

Economists closely monitor consumer confidence because consumer spending accounts for two-thirds of all U.S. economic activity.

The setback in confidence in May -- although anticipated amid higher energy costs -- is discouraging for retailers, which have seen sales slow during the month.

Although shoppers have remained resilient in the face of higher gasoline prices, which have been hovering around $3 a gallon, the question is what would it take for consumers to drastically cut their spending.

The Conference Board index was derived from responses received through May 23 to a survey mailed to 5,000 households in a consumer research panel. The figures released Tuesday included responses from at least 2,500 households.

Consumers’ overall assessment of current conditions eased but remained upbeat. But the outlook for the next six months, which improved moderately in April, turned pessimistic in May. Those expecting business conditions to worsen increased to 13.2% from 9.3%. Those expecting business conditions to improve declined to 16.5% from 17.3%.

The outlook for the labor market also was less upbeat. Those anticipating more jobs to become available in the coming months declined to 14.6% from 15.4% in April. Those anticipating fewer jobs rose to 18.2% from 16.3%.

The number of consumers anticipating their incomes to rise in the months ahead fell to 16.6% from 18%, the lowest since July 2003 when it fell to 15.9%.