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Business/Finance See other Business/Finance Articles Title: U.S. Economy: Consumer Confidence Declines as Gas Prices Surge May 12 (Bloomberg) -- Surging gasoline prices drove U.S. consumer confidence down in May by the most since hurricanes battered the Gulf Coast last year. The University of Michigan said today its preliminary index of consumer sentiment fell to 79 from the final April reading of 87.4. The rise in oil prices also means that the trade deficit, which the Commerce Department said today unexpectedly narrowed in March, may widen again in coming months. Import prices increased in April, a third report today. The sentiment survey is the second report in as many days to question whether consumers, whose spending rose last quarter by the most in five years, will continue to drive the economy. Gas prices are up about a third this year, countering the effect of rising wages and a jobless rate that's near a five-year low. ``If sentiment stays at this level, it might even decline further, you should expect a serious slowing in second- and third-quarter consumption,'' said Ian Shepherdson, chief U.S. economist at High Frequency Economics Ltd. in Valhalla, New York. Consumer spending may already be softening after jumping the most since 2000 last quarter. Retail sales rose 0.5 percent in April, the Commerce Department reported yesterday, less than economists forecast. Spending increased 5.5 percent in January to March. Sales were limited by higher gas prices, which increased 32 percent so far this year and averaged $2.96 gallon in the week ended May 8, according to the U.S. Department of Energy. Inflation Concern The advance in oil prices, which reached a record $75.35 a a barrel last month, is also stoking concerns about accelerating inflation. The prices of goods imported to the U.S. in April jumped by the most in seven months, the Labor Department said in a separate report. Treasury notes fell, pushing 10-year yields to the highest in four years. The yield on the benchmark note jumped 6 basis points to 5.18 percent at 9:07 a.m. in New York. Stocks fell on concern the Federal Reserve may have to add to its 16 interest- rate increases since 2004. ``It sure looks to me like we are seeing some rising inflationary pressures,'' said Brian Wesbury, chief economist at First Trust Advisors LP in Lisle, Illinois. Oil prices may also worsen the country's trade balance. The shortfall in goods and services last month shrank to $62 billion, the smallest since August. The deficit is still the seventh-largest on record. Deteriorating Sentiment The Michigan sentiment index was expected to decline to 86 this month from 87.4 in April, according to the median estimate in a Bloomberg News survey of economists. It hasn't fallen as much since September last year, when hurricanes Katrina and Rita hit Louisiana and Mississippi. The figure is the first of two monthly estimates provided by the University. The expectations index, which some economists view as an indicator of future consumer spending, fell to a preliminary reading of 68 from 73.4 in April. The current conditions gauge, which reflects Americans' perceptions of their financial situation and whether it's a good time to buy big-ticket items like cars, dropped to 96.2 from 109.2. U.S. consumers purchased 16.7 million vehicles at an annual rate in April, compared with 16.8 million for all of last year, according to Bloomberg data. ``This decline in confidence is not just due to higher energy prices, which would be a one- or two-month phenomenon,'' said Stephen Gallagher, chief U.S. economist at Societe Generale in New York. ``It's also the result of heightened concern about the housing slowdown and the increased dissatisfaction with the president, which may take more time to rebound from.'' Poll Slump People are also unhappy with their elected leaders, generally. President George W. Bush's approval rating fell to a record 31 percent in a CBS News-New York Times poll released May 9 and only 23 percent of respondents approved of Congress's performance. Seventy-three percent said the nation was on the wrong track in the survey of 1,241 adults taken May 4-8. The labor market has until now helped support consumer confidence this year via faster wage gains and lower unemployment. The U.S. unemployment rate was 4.7 percent last month, compared with a 5.1 percent average last year. Hourly earnings in April were 3.8 percent higher than they were during the same month in 2005 - the most since August 2001, according to Labor Department data. Economists track the University of Michigan survey for hints to consumer spending, which slowed to an 11-year low of 1.1 percent in the fourth quarter of last year. Consumer spending helped push economic expansion to an annualized growth rate of 4.8 percent in the first quarter, the fastest pace in more than two years. ``Economic growth has been quite strong so far this year,' Fed policymakers said in a May 10 statement, after raising the nation's benchmark lending rate to 5 percent. They predicted growth would slow due to the ``gradual cooling of the housing market and the lagged effects of increases in interest rates.''
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