U.S. Michigan Confidence Index Fell to 26-Year Low (Update1)

By Courtney Schlisserman

April 11 (Bloomberg) -- Confidence among U.S. consumers sank to a 26-year low in April as the labor market continued to weaken and gasoline prices rose.

The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2 from 69.5 in March. The reading was below the lowest forecast in a Bloomberg News survey and the worst since March 1982.

Americans are confronting the loss of 232,000 jobs so far this year, along with higher food and energy costs and overall weakening in the economy. Consumer spending in the first half will advance at the weakest rate in 17 years, according to economists surveyed by Bloomberg News.

``Consumers have very little to smile about,'' Ryan Sweet, an economist at Moody's Economy.com in West Chester, Pennsylvania, said before the report. ``Measures of consumer confidence are consistent right now with a recession.''

Economists had forecast the gauge would fall to 69, according to the median of 64 projections in a Bloomberg News survey. Estimates ranged from 65 to 71.

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, fell to 53.4, the lowest reading since November 1990, from 60.1 last month.

`Challenging' Retail Market

The U.S. retail market ``will remain challenging this year,'' Patrick Bousquet-Chavanne, group president of Estee Lauder Cos., said April 9 in an interview at the World Retail Congress.

Consumer spending, which accounts for more than two-thirds of the economy, will rise at an average annual pace of 0.5 percent in the first half of the year, economists surveyed by Bloomberg News earlier this month forecast. That would be the smallest two-quarter gain since purchases fell in the six months ended March 1991.

The economy will not expand at all the first six months of this year, according to the Bloomberg survey taken from April 2 to April 8. A majority of those polled also projected the world's largest economy is, or will soon be, in a recession.

The Reuters/University of Michigan current conditions index, which reflects Americans' perceptions of their financial situation and whether it's a good time to make big-ticket purchases, dropped to 78.4, the lowest since January 1983, from 84.1 in March.

Job Losses

The drop in jobs in recent months is one factor weighing on consumers' moods. Employers eliminated 80,000 workers from their payrolls in March, a third consecutive decline and the biggest in five years, the Labor Department reported last week.

Job losses may continue into this month. The government said yesterday that the number of people remaining on unemployment-benefit rolls rose last week to the highest in almost four years.

Consumers polled in today's Reuters/University of Michigan survey said they expect an inflation rate of 4.8 percent in a year, compared with 4.3 percent projected last month.

A government report earlier today showed prices of goods imported into the U.S. rose more than forecast in March, reflecting a surge in energy costs and a weaker dollar.

The 2.8 percent increase in the import price index followed a 0.2 percent gain the prior month, the Labor Department reported today in Washington. Expenses excluding fuels jumped 0.9 percent, the most since records began in 2001.

Higher energy costs have weighed on consumers' outlooks in recent months. The average price of crude oil futures traded on the New York Mercantile Exchange in March jumped to $105.42 a barrel, from $95.01 a month earlier.

Gasoline reached a record $3.332 a gallon in the week ended April 7, according to the Energy Information Administration. The administration, which is the Energy Department's statistical arm, forecast on April 8 that gasoline will cost an average of $3.54 a gallon between April and September.

Federal Reserve officials last month anticipated the economy will shrink in the first half of the year and expressed some concern about ``a prolonged and severe economic downturn'' as they cut interest rates, according to minutes of their most- recent policy-setting meeting, which were released April 8.

``Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' the Fed said in the minutes of the March 18 Federal Open Market Committee meeting.

The Fed has cut its benchmark overnight lending rate by 3 percentage points since September to try to avert a recession. Last month, Chairman Ben S. Bernanke also invoked rarely used authority to provide emergency financing for investment banks and rescued Bear Stearns Cos. from bankruptcy.

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net
Last Updated: April 11, 2008 10:07 EDT

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