Consumer Confidence Dips

Consumer confidence took a dive in June as Americans kept feeling the sting of rising fuel prices, higher interest rates and a struggling stock market.

A key measure of consumer confidence tumbled nearly six points in June, to 138.8, the fourth drop in five months, according to the Conference Board, an independent research group. The data in the Consumer Confidence Index suggests that consumers, the leading force driving the record U.S. economic expansion, may be curbing their spending habits as they see some portions of the economy start to slow.

The data are based on a representative sample of 5,000 U.S. households and is measured relative a reading of 100 in 1985.

The June drop in confidence does not necessarily mean consumers have become discouraged -- the measure of consumer vigor remains near historic highs after consumer confidence rose unexpectedly in May to a 30-year high of 144.7.

But coupled with recent reports that have shown lower levels of retail sales and a degree of slowing in the nation's housing markets, the dip in confidence could mean that Americans are cutting their aggressive spending in favor of a more cautious approach as portions of the economy cool down.

"The latest signals suggest U.S. economic activity should decelerate in coming months," said Lynn Franco, director of consumer research at the Conference Board.

In addition to their dented confidence, consumers' expectations for the second half of this year appear to be dimming. The report's gauge of consumer expectations dropped sharply to 111.2 from 118.7, indicating that consumers are growing less optimistic that the economy will continue to roar ahead at the pace it did late last year and earlier this year.

The report showed that consumers are also getting markedly less confident that the labor market can continue to buoy confidence. Consumer confidence in recent years has been largely propelled by a booming labor market, and any upticks in the unemployment rate, such as the rise to 4.1% seen in May, will likely weigh heavily on the optimism that keeps consumers spending.

Higher energy costs were also cited as one of the largest drags, especially as the summer driving season shifts into full gear. In the week ended June 26, the average price of a gallon of gasoline was $1.66, up sharply from roughly $1.12 a year ago.

Less of a factor for consumers, but still significant, was the weakness seen in stock markets since the first quarter. Although the Nasdaq Composite Index climbed in June from its May lows, the index remained significantly below its highs set early in the year.

And higher interest rates will likely continue to incrementally curb consumer demand. The Federal Reserve has raised short-term interest rates, which influence mortgage and credit-card rates, six times in the past year in an attempt to ease consumer and business demand and slow the economy. In its most recent move, on May 16, the Fed raised rates by half a percentage point instead of the quarter-point increments that had marked the previous five increases.

Fed policy makers are currently engaged in a two-day meeting and are slated to announce an interest rate decision at 2:15 p.m. EDT Wednesday. Most economists expect the Fed to leave interest rates unchanged, based on the slowing housing market and dipping retail sales in recent months.

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