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Bloomberg Confidence Index Sinks as Job Market Stalls

Thursday, 17 May 2012 04:46 PM

Consumer confidence fell last week to the lowest level in almost four months and more people than forecast filed claims for unemployment benefits, showing a lack of progress in the job market is rattling Americans.

The Bloomberg Consumer Comfort Index dropped in the week ended May 13 to minus 43.6, a level associated with recessions or their aftermaths, from minus 40.4 in the previous period. Jobless applications were unchanged at 370,000 in the week ended May 12, Labor Department figures showed Thursday in Washington.

Diminishing employment gains, falling stock prices and the prospect of government gridlock over the budget heading into the November presidential election may continue to hurt household sentiment. The lack of a sustained rebound in hiring damps the outlook for consumer spending, which accounts for about 70 percent of the world’s largest economy.

“A mix of policy questions and some ongoing softness in employment growth” is weighing on confidence, said Sam Coffin, an economist at UBS Securities LLC in Stamford, Connecticut. “We’re hearing more and more about fiscal negotiations. Last year that talk seemed to derail confidence, and that’s coming up as a topic again.” Coffin and the UBS team, led by Maury Harris, were the most accurate in forecasting the unemployment rate for the two years through April, according to data compiled by Bloomberg.

Other reports Thursday showed manufacturing in the Philadelphia region unexpectedly shrank this month and the index of leading indicators dropped in April for the first time in seven months.

Shares Drop

The disappointing data and growing concern over the European debt crisis sent the Standard & Poor’s 500 Index down for a fifth day. The gauge dropped 1.5 percent to 1,304.86 at the 4 p.m. close in New York, the lowest closing level since January, amid reports that Moody’s Investors Services was about to downgrade shares of Spanish banks.

Elsewhere, a report from the National Statistics Institute in Madrid showed Spain’s gross domestic product declined 0.3 percent in the first quarter from the previous three months, when it fell the same amount, signaling the nation succumbed to its second recession since 2009.

Japan’s economy expanded at an annualized 4.1 percent pace in the first quarter, faster than estimated, from the previous three months, data from the Cabinet Office showed. The rate was boosted by spending on projects to rebuild areas devastated by last year’s earthquake and tsunami.

One-Month Drop

The Bloomberg U.S. consumer comfort index’s 12.2-point decline over the past four weeks has erased almost all of this year’s gains. The gauge began the year at minus 44.8 and reached a four-year high of minus 31.4 in the week ended April 15.

The Thomson Reuters/University of Michigan sentiment gauge reached a similar four-year high with this month’s preliminary reading, led by gains among upper-income Americans, a report on May 11 showed. The group’s final reading is due May 25.

Readings lower than minus 40 for the Bloomberg index are correlated with “severe economic discontent,” according to Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg. The gauge has averaged minus 15.3 since its inception in December 1985.

All three of the Bloomberg Consumer Comfort Index’s components declined last week, today’s report showed. The gauge of personal finances fell to minus 12.9, the fourth straight drop and the weakest reading since November, from minus 11.2 in the prior week. A measure of whether consumers consider it a good or bad time to buy decreased to minus 48.2, a three-month low, from minus 45.8. Americans’ views on the state of the economy fell to a 10-week low of minus 69.6 from minus 64.2.

Customers ‘Struggling’

“I do not feel like the economy has come back,” James Reid-Anderson, chairman and chief executive officer of Grand Prairie, Texas-based theme-park operator Six Flags Entertainment Corp., said during a May 16 investor conference. “Every week there is a different story. One week we’re up. Next week we’re down, but there isn’t that confidence yet that the economy is back. We’re assuming that our guests might be struggling financially.”

Employers added 115,000 workers to payrolls last month, the weakest gain since October, according to Labor Department figures released May 4. The same report showed the unemployment rate fell to 8.1 percent as more Americans left the labor force.

The trend in jobless claims indicates little improvement in job-market conditions since then. The four-week moving average, a less volatile measure than the weekly figures, fell to 375,000 last week from 379,750.

Survey Week

Last week included the 12th of the month, which coincides with the period the Labor Department uses in its survey of employers to calculate monthly payroll growth. The employment report for May will be released on June 1. The four-week average for this month’s survey week was little changed from the 375,500 during the corresponding period in April.

An increase in applications for jobless benefits last month and a drop in consumer expectations about the economy depressed the index of leading indicators. The Conference Board’s gauge of the outlook for the next three to six months decreased 0.1 percent after a 0.3 percent gain in March, the New York-based group said today.

“The economy is in a midst of a soft patch, but I don’t think it’s going to be anything worse than that,” Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “Economic growth this quarter will come right around where it came in last quarter.”

Slower Growth

The economy grew at a 2.2 percent annual pace in the first three months of 2012, down from 3 percent the prior quarter. The rate of growth from April to June will probably be the same as last quarter, according to the median estimate of economists surveyed by Bloomberg from May 4 to May 9.

A report from the Federal Reserve Bank of Philadelphia today cast doubt on the outlook for manufacturing. The central bank’s general economic index fell to minus 5.8 this month, the lowest reading since September, from 8.5 in the previous month. Economists forecast the gauge would rise to 10, according to the median estimate in a Bloomberg survey. Readings less than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware.

The report was at odds with other regional data. Manufacturing in the New York area expanded at a faster pace in May, a report this week from the New York Fed showed.

“We’re in a choppy and uneven recovery,” said Sean Incremona, a senior economist at 4Cast Inc. in New York, who had the lowest estimate in the Bloomberg survey. “The recovery as a whole isn’t gathering any momentum.”

Government gridlock may hold back growth. Washington policy makers remain at a standoff over the debt ceiling after President Barack Obama met with House Speaker John Boehner yesterday. Their impasse raises the prospect of an election-year showdown on the federal debt.

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Thursday, 17 May 2012 04:46 PM
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