Consumer Confidence Index Rises in April

A Kmart department store sign reads "Now Hiring," Tuesday, April 25, 2006 in New York. The Labor Department reports on weekly jobless claims Thursday. (AP Photo/Mark Lennihan) (Mark Lennihan - AP)

Stocks slipped after both reports caused investors to be concerned that the Federal Reserve may now have more incentive to raise interest rates beyond the one quarter percentage point increase to 5.0 percent that's expected in May.

The reports give the Fed more confidence "to move rates again" in May and take "a wait-and-see" stance for the rest of the year, said Michael P. Niemira, chief economist at The International Council of Shopping Centers.

In late afternoon trading, the Dow Jones industrial average dropped 57.31, or 0.5 percent, to 11,279.01.

Despite the interest rate concerns, Tuesday's consumer sentiment report was an encouraging sign for retailers. Consumer spending perked up in April, following tepid spring sales in February and March.

"It shows a relatively healthy sales picture," said Niemira. "The question is how will the consumer react when oil prices filter through the rest of the economy."

Job growth has been solid, but Americans are paying more for gasoline, which has risen to around $3 a gallon recently and is expected to increase more during the heavy summer driving season. The Conference Board derived its index from responses received through April 18, which was before gasoline prices surged to new highs.

The Conference Board said that consumers' overall assessment of current conditions remains favorable. Those claiming conditions are "good" rose to 29.7 percent from 27.9 percent. Those claiming conditions are "bad" rose to 15.1 percent from 14.7 percent.

Consumers' views about current labor market conditions improved. Those saying jobs are "plentiful" increased to 29.1 percent in April from 28.3 percent last month, while those claiming jobs are "hard to get" edged down to 19.6 percent from 20.4 percent.

The outlook for the labor market was mixed, however. Those expecting more jobs to become available in the coming months increased to 15.7 percent from 13.7 percent in March. Those expecting fewer jobs, however, remained unchanged at 16.4 percent.

Patrick Fearon, senior economist at A.G. Edwards, noted that consumers' ability to spend ultimately depends on how the labor market fares.

"The labor market still looks good, and that gives us some cushion to handle a softening housing market and rising gasoline prices," Fearon said. But he warned that higher energy costs could unravel any gains in employment as companies are forced to cut back hiring.