Consumers' mood grim as early-80s in May

By Burton Frierson

NEW YORK (Reuters) - Consumer confidence tumbled to its lowest in 28 years this month, a survey showed on Friday, as short-term inflation expectations reached the highest levels since the stagflationary early 1980s.

The news heightens the dilemma for the Federal Reserve, which has bet that slowing economic growth will tame inflation pressures. The report also showed that lower-income households were the focus of the downturn in sentiment.

The Reuters/University of Michigan Surveys of Consumers' preliminary index of confidence fell to 59.5 in May, the lowest since June 1980. In April it was at 62.6.

"Troubling all around, lower confidence and ongoing inflation worries," said Ian Lyngen, interest rate strategist at RBS Greenwich Capital in Greenwich, Connecticut.

Stocks fell on Wall Street and the dollar also lost further ground versus the euro after the surprisingly weak consumer sentiment reading.

Government bonds, which benefit in times of economic deterioration, reversed early losses and turned higher.

The confidence index was well below economists' median expectation of a reading of 62.0, according to a Reuters poll.

"Consumer confidence continued to slip in early May due to surging food and fuel prices," the Surveys of Consumers statement said. "Record numbers of consumers viewed the economy in recession and saw little hope of recovery anytime soon."