Consumer confidence takes a hit

08/28/2005

by Victor Epstein,
Bloomberg News
August 27, 2005

Consumer confidence fell for the first time in three months in August as Americans paid record prices at the gasoline pump.

The University of Michigan’s index of consumer sentiment declined more than forecast, to 89.1 from July’s 96.5, the first drop since May and the largest decline since February 2004. A preliminary estimate of the survey on Aug. 12 put the index at 92.7.

“Up until now we haven’t seen any backlash to record prices at the pump from consumers, but now the story is changing,” said Richard Yamarone, chief economist at Argus Research in New York. “We’ve passed the complaining stage and entered the actionable phase.”

The average retail price of a gallon of regular gasoline rose to a record $2.61 this week, the latest Department of Energy figures showed. While job and income growth are supporting consumer spending and the economy, higher fuel costs threaten to slow both.

A Bloomberg News survey of 48 economists expected the confidence index to decline to 92.5, the median forecast. Estimates ranged from 91.5 to 94. The final reading is based on a phone survey of about 500 households, compared with 300 in the preliminary report.

The current conditions index, which reflects Americans’ perception of their financial situation and whether it’s a good time to buy big-ticket items, fell to 108.2 in August from 113.5 in July. The expectations index, based on optimism about the next one to five years, was 76.9, down from 85.5 last month.

“It’s got to be gasoline,” said Paul Finkelstein, CEO of Edina-based Regis Corp., the world’s largest hair salon operator. “There’s no question that people are worried. They’re shopping less and staying home more because of gas prices, and that affects everyone.”