Bloomberg News

Consumer Expectations in U.S. Decrease to Two-Year Low

June 16, 2011

(Updates with economist comment in third paragraph and Philadelphia Fed survey in eighth.)

June 16 (Bloomberg) -- Americans’ views on the economy’s outlook soured in June, showing that unemployment, inflation and the slump in housing are concerning consumers.

The Bloomberg gauge of economic expectations dropped to minus 31 this month, the lowest level since March 2009, from minus 16 in May. The Consumer Comfort Index, issued weekly, improved to minus 44 in the period to June 12, the highest level since mid April, from minus 45.9 as fuel prices kept falling.

“Consumers’ biggest concerns are about jobs and income,” said Chris Low, chief economist at FTN Financial in New York. “The bottom line is that income is not keeping up with inflation right now. People “are making sacrifices.”

Joblessness climbed to 9.1 percent in May, the highest level this year, and employers added fewer workers to payrolls than forecast. At the same time, consumer prices last month exceeded projections as the cost of everything from autos to hotel fares climbed, making it more difficult for American households to make ends meet.

Other reports today showed housing starts climbed in May, claims for unemployment benefits decreased last week and manufacturing in the Federal Reserve Bank of Philadelphia’s region unexpectedly shrank this month.

More Starts

Work began on 560,000 houses at an annual pace, up 3.5 percent from the prior month and exceeding the 545,000 median forecast of economists surveyed by Bloomberg News, figures from the Commerce Department showed. The gain was led by an 18 percent jump in the West that took construction in that area to the highest level since August.

Jobless claims declined by 16,000 to 414,000 in the week ended June 11, indicating the pickup in firings that began in April is abating, figures from the Labor Department also showed. Economists surveyed by Bloomberg projected 420,000 filings, according to the median forecast.

The Philadelphia Fed’s general economic index fell to minus 7.7, the lowest level since July 2009, from 3.9 the prior month. Readings less than zero signal contraction in the area covering eastern Pennsylvania, southern New Jersey and Delaware. The median forecast of 54 economists surveyed by Bloomberg News was 7.

The reports on housing and claims tempered concern about a slowdown in growth, sending stocks higher. The Standard & Poor’s 500 Index climbed 0.4 percent to 1,270.53 at 10:18 a.m. in New York. Treasury securities also rose, sending the yield on the benchmark 10-year note down to 2.95 percent from 2.97 percent late yesterday.

One-Month Drop

The 15-point decrease is the consumer expectations index’s biggest one-month drop since December 2008. The outlook over the past month deteriorated most among households making from $15,000 to $40,000 a year and among older Americans.

“Working-class households indicated a growing dissatisfaction with the direction of the economy likely due to rising inflation and an elevated rate of unemployment,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “This group is likely experiencing the most difficulty in adjusting to the higher costs of necessities and the inability to draw on credit due to the relatively tight credit conditions that persist.”

The gain in the weekly comfort index was paced by two of three components. The gauge of personal finances rose to minus 6.4 last week from minus 8.5. The buying climate index increased to minus 48.6 from minus 53.8.

Fuel Costs

Falling fuel costs have helped lift consumers’ moods. The average price of a gallon of regular gasoline dropped to $3.69 yesterday from $3.99 on May 4 that was the highest since July 2008, according to AAA, the nation’s largest auto group.

At the same time, the comfort report’s measure of Americans’ views of the economy was minus 77 last week, down from minus 75.5 the previous week.

Recent data showing slower job growth and a housing market that is struggling to recover may be dimming consumers’ views on the economy. Payrolls grew by 54,000 workers in May after rising by 232,000 the prior month, Labor Department figures showed June 3.

Home prices in 20 cities dropped in March to the lowest level since 2003. The S&P/Case-Shiller index of property values fell 3.6 percent from March 2010, the biggest year-over-year decline since November 2009, the group said in a May 31 report.

‘Trouble Lurking’

“While any improvement in consumer sentiment is a positive given the dreary economic numbers that the public has observed over the past two months, beneath the headline the data suggest there is real trouble lurking,” Bloomberg’s Brusuelas said.

The overall comfort index reading is still consistent with levels seen during a recession, according to Langer. The gauge averaged minus 45.7 last year.

“The economy isn’t growing strong enough to generate enough jobs to start really attacking the unemployment rate, consumer confidence isn’t as strong as you’d like it to be,” Ford Motor Co. Controller Bob Shanks said during a conference yesterday.

Bloomberg’s monthly measure of the U.S. economy’s direction showed the proportion of people saying things are getting worse jumped the most since September 2009, while fewer people said the economy is getting better. Forty-seven percent of those surveyed had a more negative outlook, compared with 36 percent in mid May. Sixteen percent said the economy is getting better, down from 20 percent in the last survey.

Survey Sample

The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 consumers aged 18 and over. Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate; the percentage of negative responses is subtracted from the share of positive views and divided by three.

The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative. The margin of error for the headline reading is 3 percentage points.

Field work for the index is done by SSRS/Social Science Research Solutions in Media, Pennsylvania.

--Editors: Carlos Torres, Vince Golle

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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