Confidence slumps as home prices post record fall

By Burton Frierson

NEW YORK (Reuters) - Consumer confidence fell to a five-year low this month as Americans confronted the grimmest jobs outlook since late 2004, while data also showed a record drop in home prices in February.

Contributing to their slumping confidence in April, consumers expected that inflation would accelerate to a pace last seen in the early 1980s. The news cemented the prevailing view that the Federal Reserve, which is to open a two-day policy meeting later on Tuesday, would signal an end to its aggressive campaign of lowering interest rates.

The private Conference Board's index of consumer sentiment fell to 62.3 in April, the lowest reading since March 2003, when the Iraq war was launched, from an upwardly revised 65.9 in March.

The monthly survey's gauge of inflation expectations surged to 6.8 percent from 6.1 percent in March. It was the highest reading on inflation expectations since a matching 6.8 percent in September 2005.

"Consumers haven't been this depressed in a long time," said Chris Rupkey, senior financial economist with Bank of Tokyo-Mitsubishi in New York.

"They are saying that jobs are much harder to get since the start of the year and that does not bode well for this Friday's employment data. This is exactly what you see when we are in a recession and the labor market indicates that we are indeed in a recession, and the million dollar question is whether this decline in confidence leads them to pull back their spending."

Consumer spending accounts for two-thirds of U.S. economic activity.

The drop in consumer confidence dragged on the stock market, with the Dow industrial down 0.30 percent in early afternoon.

Contributing to the picture of U.S. economic weakness, a key gauge of the housing sector showed no signs of an end to the sector's worst slump in a generation.

Prices of existing U.S. single-family homes extended their slide in February, falling 2.6 percent to 175.94 in February from the previous month for an annual decline of 12.7 percent., according to the Standard & Poor's/Case Shiller home price index.

In addition, U.S. home foreclosure filings jumped 23 percent in the first three months of the year from the last quarter of 2007, and more than doubled from a year earlier, as more overextended borrowers failed to make timely payments, real estate data firm RealtyTrac said on Tuesday.

U.S. President George W. Bush on Tuesday acknowledged the weak economic tone.

"It's a tough time for our economy. Across our country, many Americans are understandably anxious about issues affecting their pocketbook, from gas and food prices to mortgage and tuition bills," Bush told a news conference.

The day's data makes difficult reading for the Federal Reserve. The U.S. central bank is seen eager to halt the interest rate cuts it has made to shore up the economy since price pressures have remained strong.

The Fed, which has slashed its benchmark rate by 3 percentage points since last September, is widely expected to cut rates by a modest quarter percentage point at the end of its two-day meeting on Wednesday.