Consumer confidence at 3-month low

Consumer confidence slid to a three-month low as people fretted about the direction of the economy and their own balance sheets in the months ahead.

The RBC CASH Index, based on results from the international polling firm Ipsos, showed confidence ebbed to 74.8 in early August. That marked a sharp drop from July’s showing of 80.1. It was the second month in a row that confidence dropped, and it was the lowest reading since May.

Economists blamed the deterioration in confidence mostly on galloping energy prices and a cooling in the once-hot housing market.

With housing prices not going up as much as they had been, people aren’t feeling as wealthy. That — along with the strain of expensive energy bills — have forced consumers to tighten their belts, an important factor in the slowing of overall economic activity.

“Right now consumers are feeling insecure. They are worried about their inability to finance their standard of living in the face of higher gas prices, a softening economy, a slowing job market and a cooling housing market,” said Peter Morici, an economist and professor at the University of Maryland’s Robert H. Smith School of Business.

The economy — and the job market — have shifted into a lower gear.

Economic growth slowed to a 2.5 percent rate in the April-to-June quarter as consumers and businesses turned cautious — less than half the 5.6 percent pace seen in the previous three months. Growth in the July-to-September period also is expected to be subdued.

The nation’s unemployment rate in July rose to 4.8 percent, a five-month high.

Especially weighing on consumers is just how much weaker the overall economy and the housing market might turn, analysts said.

“It is very evident that housing is slowing and the value of peoples’ homes in most parts of the country isn’t escalating as quickly. Some are wondering whether there will be an orderly correction or a crash. That bears on people because so much of their wealth is tied up in their home,” said Carl Tannenbaum, chief economist at LaSalle Bank.

Consumers are growing more anxious about future economic conditions.

An index measuring their expectations about the next six months — including the overall economy’s prospects as well as their own financial situations — declined in early August to 21.8, down from 34.2 in July. It was the weakest since May.

With the economy slowing, Federal Reserve Chairman Ben Bernanke and his central bank colleagues decided Tuesday to halt the longest unbroken stretch of interest rate increases in recent history, a reprieve for millions of borrowers after more than two years of rate pain.

While that gives borrowers breathing room, it doesn’t mean their rates are going down. People with lots of debt loaded up on their credit cards, those who stretched to buy their homes with adjustable-rate mortgages and others who have watched their interest rates march up over the last two years are still feeling that pinch. That’s probably another factor weighing on confidence, analysts said.

The drop in confidence comes as many Americans have concerns about President Bush’s economic stewardship. Sixty-one percent disapprove of Bush’s handling of the economy, according to an AP-Ipsos poll.

Analysts track consumer confidence for clues about consumers’ willingness to spend, an important factor shaping the economy. Economists predict that consumers, socked by high energy bills, will be watching their spending on other things, but they won’t cut back drastically.

Oil prices, which hit a record closing high of $77.03 a barrel in the middle of July, have eased a bit since then but still remain lofty. Gasoline prices are above $3 a gallon in many areas.

Consumers’ attitudes about current economic conditions also waned to 92.1 in early August, down from 96.6 in July.

Another gauge tracking consumers’ sentiments about making a purchase, saving and other investment decisions dipped to 83.2 in early August from 89.6 in July.

Consumers, however, still feel really good about the jobs climate, despite the fact that last week the government reported that business hiring slowed in July. Ipsos’ jobs-climate measure climbed in early August to 120.5, up from 116.9 in July.

Wages have grown solidly in recent months, even though they are still trailing inflation. Economists, however, think wage gains may explain the increase in the jobs gauge.

The confidence index is benchmarked to a reading of 100 on January 2002, when Ipsos started the gauge.

The RBC consumer confidence index was based on responses from 1,001 adults surveyed Monday through Wednesday about their attitudes on personal finance and the economy. Results of the survey had a margin of error of plus or minus 3 percentage points.