July 29 (Bloomberg) -- Confidence among U.S. consumers dropped more than forecast in July to the lowest level in two years, which may hold back the biggest part of the economy.
The Thomson Reuters/University of Michigan final index of consumer sentiment fell to 63.7, the weakest since March 2009, from 71.5 in June. The gauge was projected to decline to 64, according to the median forecast of economists surveyed by Bloomberg News. The preliminary June reading was 63.8.
Limited payroll gains, reduced home values and higher gas prices may dissuade Americans from stepping up spending, which expanded in the second quarter at the slowest pace since 2009 when the economy was in recession. Partisan wrangling over cutting the nation’s budget deficit in time to raise the debt ceiling could also be souring moods.
“We have to see a pickup in job growth at the very least before the consumer shows a little more enthusiasm to spend,” Sal Guatieri, a senior economist at BMO Capital Markets in Toronto, said before the report. “It doesn’t inspire much confidence in a consumer-led economic recovery, at best the consumer will lag the recovery.”
Estimates of the 63 economists surveyed for the confidence measure ranged from 61.5 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.
The economy grew at a 1.3 percent annual pace in the second quarter, less than forecast, Commerce Department figures showed today. Household purchases, about 70 percent of the economy, rose 0.1 percent.
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 75.8 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 56 from 64.8.
Consumers in today’s confidence report said they expect an inflation rate of 3.4 percent over the next 12 months, compared with 3.8 percent in the prior survey.
Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 2.9 percent rate of inflation, compared with 3 percent the previous month.
Federal Reserve Chairman Ben S. Bernanke told Congress earlier this month that the “economy still needs a good deal of support.” Slower jobs gains and falling home prices are weighing on consumers, Bernanke said.
Employers added 18,000 jobs in June, the fewest in nine months as the unemployment rate climbed to 9.2 percent.
Property values fell in the year ended in May by the most in 18 months, the S&P/Case-Shiller index of property values in 20 cities showed earlier this week.
Today’s confidence report follows the Bloomberg Consumer Comfort Index, which fell to minus 46.8 for the week ended July 24. The Conference Board’s monthly sentiment index climbed in July from an eight-month low.
Lagging consumer confidence and weak employment gains may curb consumer spending, said Larry Young, chief executive officer of Dr. Pepper Snapple Group Inc.
“I remain concerned about the U.S. economy, unemployment trends and the impact this is having on the overall spending patterns,” Young said on a July 27 conference call with analysts.
The Plano, Texas-based non-alcoholic beverage company reiterated its projection for a 3 percent to 5 percent increase in sales for the year.
The impasse over cutting the budget deficit could also be weighing on consumers’ moods. Treasury Secretary Timothy F. Geithner has repeatedly said the government’s authority to borrow will run out on Aug. 2 unless Congress raises the debt- ceiling, posing a risk the U.S. will lose its top credit rating.
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