Consumers less confident as gas prices soar

Tue Jun 3, 2008 8:14am EDT
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By John McCrank

TORONTO (Reuters) - Consumer confidence dropped to its lowest level in nearly seven years in May, as concerns about future finances intensified amid record high gas prices, the Conference Board of Canada said on Monday.

The board's index of consumer confidence fell 7 points in May to 85.8, according to the monthly survey based on 2,000 telephone interviews.

"Up until May we had begun to see Canadian consumer confidence buckle a bit, but it slid hard in May and I have no doubt for a minute that the driving force was the spike in gasoline prices," said Doug Porter, deputy chief economist at BMO Capital Markets.

The Conference Board said the last time consumer confidence took such a beating was in the fall of 2005 when gas prices soared after Hurricane Katrina.

Growing demand from developing countries helped U.S. light, sweet crude futures hit an all-time high of $135.09 on May 22, ramping up inflation and growth concerns globally.

"I think compounding the weakness in confidence has just been the steady drumbeat of negative headlines in recent weeks, whether it's the potential for soaring food prices or weakness in the U.S. economy, or layoffs in the auto sector," said Porter.

Every region in Canada saw waning levels of confidence, with the largest declines in Central and Eastern Canada.

In Ontario and Quebec, which make up the country's manufacturing heartland and have been hit hardest by the stronger Canadian dollar and U.S. economic slowdown, the index plunged 9.6 and 6.6 points respectively.   Continued...

<p>Meleta Smith cleans the shelves at a store at the Calgary International airport August 19, 2006. REUTERS/Todd Korol</p>