Tags: Expert | Consumer | Confidence | US

Expert: Consumer Confidence to Fall This Summer

Tuesday, 06 March 2012 12:34 PM

Consumer confidence will fall this summer as gasoline prices continue rising and eat away at household spending, says Tobias Levkovich, Citigroup's chief U.S. equity strategist.

Consumer spending accounts for 70 percent of the U.S. economy, and when confidence erodes, consumers spend less and dampen an already lackluster U.S. recovery.

"Gasoline prices have an inverse relation to consumer confidence. As they go up consumer confidence tends to wane," Levkovich tells CNBC.

Editor's Note: Wall Street Insider Exposes Death of Main Street America

A mild winter has cut into heating costs, while natural gas prices have been cheap, thus lowering energy bills for many American families.

That relief will end when gasoline prices begin their seasonal rise in the spring and summer, when Americans drive more and refining feedstocks rise in price.

Crude prices are already soaring due to geopolitical tensions in the Middle East, sending average gasoline prices around $3.76 a gallon, according American Automotive Association figures

"We've gotten a little bit of a break this year because of the mild winter and natural gas prices and all of these things are helping with the heating costs. But travel costs are moving higher. Everybody looks at the pump prices and kind of gasps a little bit, and that will undermine confidence," Levkovich says.

Lately, consumer spending has increased while consumer confidence has not kept the same pace, which is not normal in the United States.

That's likely due to government programs like extended unemployment benefits and other services like food stamps.

When that public-sector support dries up and spending falls amid rising gasoline prices, expect overall consumer confidence to take it across the chin — and President Barack Obama's reelection chances as well.

"It takes about six months for high energy prices to really start weighing on confidence, which if it doesn't come down soon is actually not very good for Mr. Obama's chances."

Unemployment would have to make significant improvements to offset the damage rising energy prices will do to confidence.

"The best thing you could have is an unemployment check be replaced by a paycheck, and that's usually significantly higher than the unemployment check," Levkovich says.

The Conference Board's Consumer Confidence Index stands at 70.8, up from a revised 61.5 in January, thanks to improving unemployment rates.

"Consumers are considerably less pessimistic about current business and labor market conditions that they were in January," says Lynn Franco, director of The Conference Board Consumer Research Center, according to Reuters.

Doubts remain, economists say, pointing out gasoline prices weren't as high at the beginning of the year as they are now.

"The big question is how will consumers respond to higher energy and gasoline prices. The recent increases did not find their way into this, so it will be interesting to see how they will respond in the months ahead," says Tom Porcelli, chief U.S. economist at RBC Capital Markets in New York, according to Reuters.

Editor's Note: Wall Street Insider Exposes Death of Main Street America

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Tuesday, 06 March 2012 12:34 PM
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