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Consumers' confidence in economy flags

NEW YORK -- Consumer confidence soured in May, as Americans fretted about the overall economy and the job outlook. The drop in a widely watched barometer of sentiment was the steepest since hurricanes pummeled the Gulf Coast last year, increasing worries about the health of consumer spending.

The New York-based Conference Board said yesterday its consumer confidence index fell almost seven points to 103.2, down from the revised 109.8 in April. Still, May's reading was better than the 100.9 expected by analysts.

The decline stalled a rebound seen since November in the aftermath of last year's hurricanes, which sent the index down 18 points in September. The exception was a dip in February when short-lived pessimism over the job market hurt consumer sentiment.

Economists closely monitor consumer confidence because consumer spending accounts for two thirds of all US economic activity.

The setback in confidence -- while expected because of higher energy costs -- is discouraging for retailers, which have seen sales slow during the month. In fact, Wal-Mart, the world's largest retailer, expects May sales at stores open at least a year to rise a modest 2.3 percent, at the low end of expectations. It cited high gasoline prices as a big factor. Wal-Mart and other major merchants are slated to report monthly sales results tomorrow.

While shoppers have remained resilient in the face of higher gasoline prices, which have been hovering around $3 per gallon, the question is what will it take for consumers to dramatically cut their spending.

An AP-Ipsos poll in early May found 70 percent of Americans expect that increases in gas prices will cause financial hardship over the next six months -- up from 51 percent a year earlier. The national telephone survey of 1,000 adults had a sampling error margin of plus or minus 3 percentage points.

So far, ``there is a lot more worry about higher gasoline prices than there is action," said Mark Vitner, senior economist at Wachovia Securities . ``Higher gasoline prices have certainly eaten into purchasing power, but spending is still barreling forward."

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