Consumer confidence falls in June, hurt by rising interest rates and gas

NEW YORK - Americans grew more concerned about the direction of the U.S. economy in June, a new report said Tuesday, with rising interest rates and soaring gasoline prices beginning to eat away at consumers' confidence.

The Conference Board said its Consumer Confidence Index fell to 138.8 in June from a revised 144.7 in May, which matched the all-time high reached in January. The June index came in below Wall Street analysts' expectations.

While the reading dropped nearly 6 points this month, it still remains near record levels and was not seen as sign of an end of economic growth. But consumers did begin to indicate in June that they were less optimistic about future economic conditions.

''While latest signals suggest that the U.S. economic activity should decelerate in coming months, consumers are not expecting this record-breaking economic expansion to end any time soon,'' said Lynn Franco, director of the Conference Board's research center.

The index, based on a monthly survey of some 5,000 households, is closely watched because consumer spending makes up about two-thirds of the nation's economic activity.

The report comes as economists scour data pointing to the direction of the economy. Some recent reports, including home sales, retail sales, factory orders and unemployment, have offered signs that the economy may be slowing a bit. Rising prices at the gas pump on top of a steady rise in interest rates are putting pressure on consumers.

The economic cooldown comes after six interest rate increases by the Federal Reserve over the past year in an attempt to slow overall growth and keep inflation under control.

The central bank will hold interest rate discussions Tuesday and Wednesday in Washington. But most economists believe Fed policy-makers will leave rates unchanged this time to wait and see whether the previous increases have had the desired impact.

''Consumers are feeling a little less optimistic than they were last year,'' said Gary Thayer, chief economist at A.G. Edwards & Sons Inc. in St. Louis. ''They have felt the effects of the higher gas prices and the rising interest rates are starting to filter through to the consumer.''

The muted report on consumer confidence raised expectations on Wall Street that the Fed would hold rates steady this week, and stock prices rose initially. But some nervousness ahead of the Fed's decision on interest rates spurred a selloff in late trading. The Dow Jones industrial average finished the day down 38.53 to close at 10,504.46.

In the consumer confidence survey, the index that measures feelings about present overall conditions fell 3.4 points to 180.2, while the index that measures expectations for the next six months fell a significant 7.5 points to 111.2.

The business-financed Conference Board said more people expect business conditions to worsen in the next six months. They also see their incomes declining and jobs being harder to find.

Fewer consumers indicated their intentions to travel on a vacation or buy a car or a home.

Even with Americans growing more pessimistic about the economy, many economists don't believe that consumers will stop spending soon.

Bryan Jordan, an economist at Banc One Investment Advisors in Columbus, Ohio, said that most economic fundamentals remain strong, especially the tight labor market which has made it easy for most people to find work.

''Everything is still working in the consumers' favor and they aren't going to slow down yet,'' he said. ''The question is whether things continue to move faster than the Fed's speed limit.''