Bloomberg News

U.S. Economy: Confidence Slumps to Lowest Level Since 2009 (3)

August 30, 2011

(Updates with closing market prices in fifth paragraph.)

Aug. 30 (Bloomberg) -- Confidence among U.S. consumers plunged to the lowest level in more than two years as Americans’ outlooks for employment and incomes soured.

The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July, figures from the New York-based research group showed today. It was the biggest point drop since October 2008. A separate report showed home prices declined for a ninth month.

Treasury yields dropped on concern consumers will pull back on the spending that makes up about 70 percent of the economy, increasing the risk of a recession. An unemployment rate above 9 percent, partisan bickering over the budget deficit and a volatile stock market weighed on sentiment.

“This paints a picture of underlying demand weakening,” said Bricklin Dwyer, an economist at BNP Paribas in New York, whose forecast of 45 was most accurate in a Bloomberg News survey. “Consumers are seeing their wealth deteriorate. We’ve seen a huge decline continuing in the housing market. They’ve also been hit on the chin by the equity markets.”

Treasuries climbed, pushing down the yield on the benchmark 10-year note down to 2.17 percent from 2.26 percent late yesterday. After declining as much as 1.2 percent, the Standard & Poor’s 500 Index rose 0.2 percent to 1,212.92 at the 4 p.m. close in New York after minutes of the Federal Reserve’s last meeting showed some policy makers wanted to take more action to spur growth.

Global Confidence Slump

American consumers aren’t the only ones feeling more glum. European confidence in the economic outlook plunged in August by the most since December 2008 as a persistent debt crisis roiled markets and clouded growth prospects. An index of executive and consumer sentiment in the single-currency region fell to 98.3 from a revised 103 in July, the European Commission in Brussels said today.

The S&P/Case-Shiller index of property values in 20 cities fell 4.5 percent in June from a year earlier, after a 4.6 percent drop in the 12 months ended in May that was the biggest since 2009.

Federal Reserve Bank of Chicago President Charles Evans urged easier monetary policy to keep the recovery going after the central bank on Aug. 9 vowed to keep its benchmark interest rate close to zero at least through mid 2013.

“I would favor more accommodation,” Evans, a voting member of the Fed’s policy-making committee, said today in a CNBC television interview. “I am somewhat nervous about the economic recovery and where we stand at this point.”

Survey Results

Economists predicted the Conference Board’s gauge would fall to 52 in August, according to the median forecast in the Bloomberg survey. The index averaged 98 during the economic expansion that ended in December 2007.

The share of consumers who said jobs are currently hard to get increased to 49.1 percent, the highest since November 2009, from 44.8 percent in July. Confidence dropped in all nine U.S. regions.

“If you were advised to lean on one side or the other, I’d say it’s more likely to be slightly more negative from a sentiment perspective in consumers in the United States,” Glenn Murphy, chief executive officer of Gap Inc., said in an Aug. 18 conference call with analysts. “Maybe the holiday season could be slightly positive, but we’re not counting on it right now.”

San Francisco-based Gap, the largest U.S. apparel chain, reported a 19 percent decline in second-quarter profit as price increases failed to keep up with higher costs to make clothes.

Other Measures

Today’s confidence report is in line with other figures. The Thomson Reuters/University of Michigan final index of consumer sentiment dropped this month to the lowest level since November 2008. The Bloomberg Consumer Comfort Index has been hovering at levels previously consistent with recessions.

A struggling labor market is weighing on consumer sentiment. Employers added 75,000 jobs in August, compared with 117,000 in July, as the unemployment rate held at 9.1 percent, according to the median estimates in a Bloomberg survey ahead of a Sept. 2 report from the Labor Department.

“Economic growth has, for the most part, been at rates insufficient to achieve sustained reductions in unemployment,” Fed Chairman Ben S. Bernanke said Aug. 26 at the Jackson Hole, Wyoming, central bank symposium.

The Conference Board’s data showed a measure of present conditions declined to 33.3, the second-lowest this year, from 35.7 in July. The measure of expectations for the next six months slid to 51.9, the weakest since April 2009, from 74.9.

Job Concerns

The percent of respondents expecting more jobs to become available in the next six months fell to 11.4, the lowest since March 2009, from 16.9 the previous month. The proportion expecting their incomes to rise over the next six months declined to 14.3 from 15.9. The percent expecting a drop rose to 18.7, the highest since November 2009.

Fewer respondents in the Conference Board’s survey indicated they were planning to buy a house, while more intended to purchase cars or major appliances in the next six months.

The cutoff date for the survey responses in this month’s calculation was Aug. 18, Lynn Franco, director of the Conference Board’s Consumer Research Center, said in an interview. The group looked at the responses received before and after the downgrade of U.S. debt by Standard & Poor’s and saw very little difference, she said.

“The decline we saw was already in place before the downgrade, and there was really already a significant change in confidence,” said Franco.

Broad-Based Drop

All of the 20 cities in the S&P/Case-Shiller home-price index showed a year-over-year decline in June, led by an 11 percent drop in Minneapolis.

Any recovery in home values is probably years away as foreclosures dump more properties onto to the market, while a jobless rate hovering around 9 percent and strict lending rules hurt sales.

“Prices aren’t going to rebound back rapidly,” said Paul Dales, a senior U.S. economist at Capital Economics Ltd. in Toronto.

--With assistance from Alex Kowalski in Washington. Editors: Vince Golle, Christopher Wellisz

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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


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