Originally created 05/27/98

Consumer confidence takes a dip

NEW YORK -- Americans' confidence in the economy dropped slightly in May, but still pointed to optimism that the healthy pace of economic growth will continue in coming months.

The Conference Board reported Tuesday that its index of consumer confidence fell to 135.2 in May from a revised 137.2 in April. The decline was smaller than Wall Street analysts' expectations, and the index remains near the 29-year high of 137.4, which was reached in February.

"Consumers are still in a very good mood -- they feel good about the economy," said Gary Thayer, senior economist at A.G. Edwards & Sons Inc. in St. Louis. "But they are cooling their expectations a bit, which may slow spending and prevent the economy from overheating."

In another sign of a cooling off of the economy, the National Association of Realtors reported home resales slipped 2.5 percent in April from the record rate reached in March.

Investors initially cheered the reports. Stocks surged in early trading before retreating at midday. The Dow Jones industrial average finished the day with a drop of 150.71 points to 8,963.73. Bond prices ended sharply higher, pushing down long-term interest rates.

Consumer sentiment is important because consumer spending accounts for two-thirds of the nation's overall economic activity.

Fueling consumers' satisfaction with the economy in recent months is the tight labor market. U.S. unemployment rate fell in April to 4.3 percent, the lowest rate since February 1970 when unemployment was 4.2 percent.

Also pleasing consumers is the surging stock market, with the Dow Jones industrial average rising more than 15 percent already this year after a 22 percent gain in 1997.

Market watchers and economists have been scouring new data for signs that the economic pace may be easing enough to keep inflationary pressures in check without a boost in interest rates by the Federal Reserve. In the Conference Board report, consumers felt most confident about the current economic situation, boosting the index that measures feelings about present conditions slightly in May, a rise of 0.7 point to 170. The expectations index, which tracks the sentiment for the next six months, fell 3.8 points to 112, with more consumers worried there will be fewer jobs in the future.

More consumers said they would buy a home, go on a vacation or purchase a major appliance, like a washing machine or television, in the next six months. Fewer, however, said they would buy a car.

The consumer confidence index, calculated since 1985 from a base of 100, is derived from responses to questions sent to 5,000 households nationwide. The survey polls consumers on matters ranging from job availability to buying plans.


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