Consumer confidence sank in April

ANN ARBOR—Consumer confidence sank in April, marking the fourth consecutive monthly decline, with the Sentiment Index falling to its lowest level since September 2003. “The recent loss in consumer confidence was due to heightened concerns about rising inflation, higher interest rates and slower job growth,”according to Richard Curtin, the Director of the University of Michigan’s Surveys of Consumers.

Rising gas prices had the greatest impact on consumers’ financial assessments and vehicle buying plans. “While the buzzwas about gas prices, especially among lower income households, all consumers have become more concernedabout their future job and income prospects,” Curtin said. In the past several months, consumers have increasingly expected the pace of economic growth to slow during the balance of 2005. Without a quick reversal of the declines in confidence, the growth rate in consumer spending will be slower than originally anticipated, with overall growth in real spending falling to about 3.0% during the balance of 2005, down from 3.5% in thefirst quarter of 2005.

The Index of Consumer Sentiment was 87.7 in the April 2005 survey, down from 92.6 in March and 94.2 recorded in April 2004. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, fell to 77.0 in The Current Economic Conditions Index was 104.4 in the 105.0 recorded last April.

Rising gas prices have weakened the finances of consumers. “One-in-five consumers specifically cited the negative impact of rising prices when asked about their current financial situation, the highest level recorded since 1991,” Curtin said. Their outlook for the future was just as bleak, with consumers expecting the worst change in their personal finances in a decade. “This negative outlook was largely reflected in their expectation that prices would rise faster than their incomes during the year ahead,” Curtin noted.

Consumers expected a 3.3% annual rate of inflation during the year ahead in the April survey. The last time a higher inflation rate was expected was more than ten years ago.

Job prospects fell to their worst level in two years. “Twice as many consumers expected the unemployment rate to inch upward rather than downward during the rest of 2005. This was the worst outlook for jobs in two years,” according to Curtin. Slowing job growth reflected the expectation of consumers that conditions in the overall economy were likely to continue to slowly weaken in the year ahead.

Vehicle buying conditions were viewed negatively mainly due to the recent surge in gas prices. “Onethird of all consumers rated vehicle buying conditions unfavorably in April, the worst reading in nine years,” Curtin said. Nearly one-in-five consumers cited their uncertainty about future gas prices as the prime reason for the postponement of vehicle purchases.

Home sales continued to be dominated by a desire to purchase in advance of any additional increases in mortgage rates and home prices. “More consumers favored buying homes in advance of anticipated increases in mortgage rates and prices in the April survey than at any other time in the last decade,” according to Curtin. These views have forestalled at least temporarily what would have been declines in home purchases.

Further Information: Richard T. Curtin, Director Surveys of Consumers Internet: www.umich.edu/~umsurvey