Bloomberg News

Consumer Sentiment in U.S. Declines More Than Forecast

June 17, 2011

(Updates with economist’s comment in fourth paragraph.)

June 17 (Bloomberg) -- Confidence among U.S. consumers dropped more than forecast in June as households contended with higher prices that are eating into incomes amid slowing job growth.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 71.8 from 74.3 in May. Economists forecast a reading of 74, according to the median estimate in a Bloomberg News survey.

While gasoline costs have retreated from the highest levels since July 2008, consumer budgets are being strained by rising prices for other goods and services. Unemployment climbed in May to the highest this year, and employers added the fewest workers in eight months, further stressing the largest part of the economy.

“Things have cooled off after better growth earlier in the year, and people are still worried about the labor market, housing and high gasoline prices,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida, who forecast the gauge would drop to 72. “If we get another break in gasoline prices, that will be very helpful for the consumer.”

The Conference Board in New York said today that its index of leading economic indicators climbed 0.8 percent in May after a 0.4 percent drop a month earlier.

Stocks extended gains after the report and on signs of progress on a bailout for Greece. The Standard & Poor’s 500 Index rose 0.7 percent to 1,276.81 at 10:21 a.m. in New York. Treasuries fell, pushing up the yield on the benchmark 10-year note to 2.95 percent from 2.93 percent late yesterday.

Forecasts in the Bloomberg survey of 67 economists ranged from 70 to 78.5. The index averaged 89 in the five years leading up to the recession that began in December 2007.

Current Conditions

The Michigan survey’s current conditions gauge, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, decreased to 79.6, the lowest since October, from 81.9 the prior month.

Consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 66.8 from 69.5, the report showed.

The Bloomberg gauge of economic expectations, released yesterday with the weekly comfort index, fell to minus 31 this month, the lowest level since March 2009, from minus 16 in May. The outlook deteriorated most among households making from $15,000 to $40,000 a year and among older Americans.

Weekly Comfort Index

The weekly Bloomberg Consumer Comfort Index rose to the highest level since mid April in the week ended June 12 as fuel costs dropped.

Today’s confidence survey showed consumers said they expect an inflation rate of 4 percent over the next 12 months, compared with a rate of 4.1 percent projected in May. Over the next five years, the period tracked by Federal Reserve policy makers, Americans’ expectations for inflation rose to 3 percent from 2.9 percent forecast last month.

Falling fuel costs have helped brightened households’ moods. The average price of a gallon of regular gasoline declined to $3.68 yesterday from $3.99 on May 4, the costliest since July 2008, according to AAA, the nation’s largest motoring group.

This year’s gain in gas prices has left Americans with less to spend on non-essential merchandise. Sales at U.S. retailers excluding automobiles rose 0.3 percent in May, the smallest gain in 10 months, Commerce Department figures showed June 14.

Slower Job Growth

Slower job growth and a housing market that is struggling to recover are also dimming consumers’ economic outlook. Payrolls grew by 54,000 workers in May, the fewest in eight months, and the jobless rate rose to 9.1 percent, Labor Department figures showed June 3.

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

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.

More expensive consumer prices are also squeezing paychecks. The cost of living in the U.S. rose more than forecast in May as prices for everything from autos to hotel rooms climbed, a sign raw-material expenses are filtering through the economy, Labor Department figures showed June 15.

--With assistance from Chris Middleton in Washington. Editors: Vince Golle, Chris Wellisz

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 cwellisz@bloomberg.net


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