Gasoline prices sap confidence, Fed chief says

www.omaha.com Published Thursday February 27, 2003 BLOOMBERG NEWS

WASHINGTON - The decline in consumer confidence this month wasn't a surprise because higher gasoline prices brought on by events in Iraq and Venezuela are hurting consumer incomes, Federal Reserve Chairman Alan Greenspan said Wednesday.

The Conference Board reported Tuesday that its February index of consumer confidence plunged to a nine-year low of 64 from 78.8 in January. Greenspan blamed a 41 percent rise in gasoline prices over the past three months.

"Consumer confidence indexes tend to be affected to events consumers are acutely aware of, such as the dramatic rise in gasoline prices," Greenspan told a Senate hearing on deposit insurance. The size of the index decline "is a surprise but not the direction," Greenspan said.

Except for a 17-point drop the month of the terrorist attacks, the 14.8-point decline was the largest since April 1980, when a U.S. mission to rescue American hostages in Iran failed.

A sustained drop in confidence could foreshadow weaker consumer spending, which accounts for two-thirds of the economy. That possibility is "a cause for concern," Peter Fisher, the Treasury Department's undersecretary for financial markets, told the senators.

Gas prices are up on fears of war with Iraq and supply constraints because of a strike by oil workers in Venezuela. Together, the two nations pump about 7 percent of the world's oil.

For now, the increase "is an actual constriction in the available cash households have for things," Greenspan said. "Their real incomes, in that regard, have been taxed."