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High prices, sluggish job market bring consumer confidence index down

WASHINGTON — Confidence among U.S. consumers dropped more than forecast in June as households contended with higher prices that are eating into incomes amid slowing job growth.

The Thomson Reuters-University of Michigan preliminary index of consumer sentiment decreased to 71.8 from 74.3 in May. Economists forecast a reading of 74, according to the median estimate in a Bloomberg News survey.

While gasoline costs have retreated from the highest levels since July 2008, consumer budgets are being strained by rising prices for other goods and services. Unemployment climbed in May to the highest level this year, and employers added the fewest workers in eight months, further stressing the largest part of the economy.

"Things have cooled off after better growth earlier in the year, and people are still worried about the labor market, housing and high gasoline prices," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, who forecast the gauge would drop to 72. "If we get another break in gasoline prices, that will be very helpful for the consumer."

The Michigan survey's current conditions gauge, which reflects Americans' perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, decreased to 79.6, the lowest since October, from 81.9 in May.

Consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 66.8 from 69.5, the report showed.

Friday's confidence survey showed consumers said they expect an inflation rate of 4 percent over the next 12 months, compared with a rate of 4.1 percent projected in May. Over the next five years, the period tracked by Federal Reserve policy­makers, Americans' expectations for inflation rose to 3 percent from 2.9 percent forecast last month.

This year's gain in gas prices, despite the recent retreat, has left Americans with less to spend on nonessential merchandise. Sales at U.S. retailers excluding automobiles rose 0.3 percent in May, the smallest gain in 10 months, Commerce Department figures showed June 14.

Slower job growth and a housing market struggling to recover are also dimming consumers' economic outlook. Payrolls grew by 54,000 workers in May, the fewest in eight months, and the jobless rate rose to 9.1 percent, Labor Department figures showed June 3.

More expensive consumer prices are also squeezing paychecks. The cost of living in the U.S. rose more than forecast in May as prices for everything from autos to hotel rooms climbed, a sign raw-material expenses are filtering through the economy, Labor Department figures showed June 15.

.Fast facts

Leading indicators climb

The Conference Board, a private research group, said the economy is rebounding from its spring slump and should grow modestly through the fall. It said Friday that its index of leading economic indicators rose 0.8 percent last month. That's an improvement from April, when the index dropped 0.4 percent — the first decline since June 2010. The May report was the largest increase since February. Eight of the 10 measures the Conference Board uses to calculate the index increased. In April, only four showed improvement. The brighter reading suggests the economy will regain some of the momentum it lost this spring, when high gas prices cut into consumer spending and businesses pulled back on hiring.

Associated Press

High prices, sluggish job market bring consumer confidence index down 06/17/11 [Last modified: Friday, June 17, 2011 10:49pm]
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