Tags: Consumer | confidence | Sentiment | Falls

Consumer Sentiment Falls to Worst Level Since March 2009

Friday, 15 July 2011 10:09 AM

Confidence among U.S. consumers unexpectedly fell in July to the lowest level in more than two years, adding to concern that weak employment gains and falling home prices may keep households from spending.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.8, the weakest reading since March 2009, from 71.5 the prior month. The gauge was projected to rise to 72.2, according to the median forecast of 62 economists surveyed by Bloomberg News.

Slow jobs gains and falling home values may be weakening Americans’ outlooks, underscoring Federal Reserve Chairman Ben S. Bernanke comments to Congress earlier this week. At the same time, gas prices still north of $3.50 may also be weighing on consumers, posing a risk that spending will cool.

“Consumers are still concerned about the economy and the primary driver of that is the sluggish labor market,” said Ryan Wang an economist at HSBC Securities USA Inc. in New York said before the report. “ The relatively low level of sentiment is in fact consistent with the modest growth of retail spending that we’ve seen, particularly in the last three months, and that pattern is likely to hold.”

Estimates for the confidence measure ranged from 75 to 68, according to the Bloomberg survey. The index averaged 89 in the five years leading up to the recession that began in December 2007.

Worse Reading

Today’s confidence figures are more dire than the Bloomberg Consumer Comfort Index, which climbed to minus 43.9 for the week ended July 10. Even with the advance, the Bloomberg measure was lower than at the start of the year.

The Conference Board’s monthly sentiment index, which more closely mirrors the labor market, fell to a seven-month low in June.

The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, decreased to 76.3, the lowest level since November 2009, from 82 the prior month.

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 55.8, the weakest since March 2009, from 64.8 the prior week.

Less Inflation

Consumers in today’s confidence report said they expect an inflation rate of 3.4 percent over the next 12 months, the lowest since February, compared with 3.8 percent in the prior survey.

Americans expected a 2.8 percent rate of inflation over the next five years, the figures tracked by Federal Reserve policy makers, compared with 3.0 percent the prior month. It was the lowest price-expectation this year.

The cost of living in the U.S. fell in June for the first time in a year as the biggest drop in energy costs since 2008 masked growing inflation in other goods and services like autos, clothing and hotel rates, another report today showed.

The consumer-price index decreased 0.2 percent, compared with the 0.1 percent drop median forecast of economists surveyed by Bloomberg, according to figures from the Labor Department. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.3 percent for a second month, more than forecast and the biggest back-to-back gain in three years.

Factory Production

Also today, the Federal Reserve reported that industrial production rose 0.2 percent in June, less than the median forecast of economists surveyed by Bloomberg, restrained by declines in the output of autos and business equipment.

Slow employment gains are likely contributing to lagging consumer sentiment. Employers added 18,000 jobs in June, the slowest pace in nine months, as the unemployment rate climbed to 9.2 percent, the Labor Department reported last week.

Fed Chairman Ben S. Bernanke said central bankers aren’t ready to start a third round of quantitative easing in testimony before the Senate yesterday.

“Households report that they have little confidence in the durability of the recovery and about their own income prospects,” he said on Wednesday.

Falling home prices are also weighing on consumers’ moods, Bernanke said. Property values dropped 4 percent for the year ended in April, the biggest decline in 17 months, according to the S&P/Case-Shiller index.

Housing Slump

“The ongoing weakness in home values is holding down household wealth and weighing on consumer sentiment,” Bernanke told Congress on Wednesday.

Concern about declining household wealth may be keeping consumers from opening their wallets. Sales at U.S. retailers stagnated in June, the poorest performance in 2010, the Commerce Department reported yesterday.

Unemployment and rising prices for staples such as milk and eggs are weighing on consumers, pushing them to cut back on non- essential items, said Gayle Fuguitt, vice president of consumer insights at General Mills Inc. (GIS)

“In developed markets around the world, unemployment rates are stubbornly high,” Fuguitt, said on a July 13 conference call with investors. “Consumer prices are rising and in the U.S., consumer confidence is at a historic low.”

The Minneapolis-based maker of Cheerios cereal projected a profit for fiscal year 2012 on June 29 that trailed analysts’ estimates.

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Confidence among U.S. consumers unexpectedly fell in July to the lowest level in more than two years, adding to concern that weak employment gains and falling home prices may keep households from spending. The Thomson Reuters/University of Michigan preliminary index of...
Friday, 15 July 2011 10:09 AM
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