Consumer outlook darkens

Confidence among U.S. consumers fell to a 26-year low after unemployment increased and gasoline prices surged, threatening the spending that accounts for more than two- thirds of the economy.

The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2 this month. It was the weakest level since 1982, when the jobless rate approached 11%, the worst since the Great Depression. In other figures released Friday, the Labor Department reported that the cost of imported goods climbed 14.8% in March from a year earlier, led by oil.

The reports validate concern among Federal Reserve officials that the economy will shrink in the first half of 2008.

“The pocketbook issues are striking home,” said Richard DeKaser, chief economist at National City Corp.

Americans are confronting the loss of 232,000 jobs so far this year, along with higher food and energy costs and overall weakening in the economy. Consumer spending in the first half will advance at the weakest rate in 17 years, according to economists surveyed by Bloomberg News.

Import prices rose 2.8% in March after a 0.2% gain the previous month, the Labor Department said. Excluding fuels, prices jumped 0.9%, the most since records began in 2001.

Import prices had been forecast to rise 2%, according to the median estimate of economists in a Bloomberg News survey.

Economists had forecast that the consumer-sentiment gauge would fall to 69, from 69.5 in March, according to a Bloomberg News survey.

“The consumer’s feeling increasingly hemmed in,” said Brian Bethune, director of financial economics at Global Insight Inc. in Lexington, Mass.

The Reuters/University of Michigan index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, fell to 53.4, the lowest reading since November 1990, from 60.1 last month.