Bloomberg News

U.S. Economy: Comfort Drops to Second-Weakest on Record

September 29, 2011

(Updates with closing market prices in fifth paragraph.)

Sept. 29 (Bloomberg) -- Consumer confidence slumped last week to the second-lowest level on record as Americans grew more concerned with their financial situation and the buying climate worsened.

The Bloomberg Consumer Comfort Index dropped to minus 53 in the period ended Sept. 25 from minus 52.1 the prior week. Another report showed the economy grew at a faster pace in the second quarter than previously estimated.

The comfort gauge showed the share of households saying it was a bad time to buy needed goods and services climbed to the highest level in three years, raising the risk that the biggest part of the economy will slow heading into the holiday shopping season. A lack of jobs and growing concern that policy makers will be unable to spur the recovery may keep sentiment depressed.

“Consumers are frustrated with just about everything,” said Lindsey Piegza, an economist at FTN Financial in New York. “Not only the pace of the economic recovery, but the heightened unemployment and also the clear lack of leadership in Washington.”

Stocks rose as Germany approved changes to a European bailout fund. The Standard & Poor’s 500 Index rose 0.8 percent to 1,160.4 at the 4 p.m. close in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 2.00 percent from 1.98 percent late yesterday.

More Growth

The economy grew at a 1.3 percent annual rate in the second quarter, helped by exports and spending on services, a report from the Commerce Department also showed. The revised rise in gross domestic product compares with a 1 percent gain previously calculated and followed a 0.4 percent increase in the first three months of the year.

The comfort gauge reached similar readings of minus 53 three times in the first half of 2009, when the economy was in the recession. It is surpassed only by all-time lows of minus 54 plumbed in November 2008 and again in January 2009. Sentiment among homeowners and part-time workers fell to the lowest in records dating back to 1990, while married Americans were the gloomiest in 19 years.

Company executives have also turned less optimistic. The Business Roundtable’s survey of chief executive officers showed its economic outlook index fell to 77.6 in the third quarter, the lowest reading since the last three months of 2009, from 109.9 in the previous three months, the Washington-based group said today. Readings higher than 50 are consistent with economic expansion. Survey participants reduced forecasts for growth, employment and business investment.

‘Slower’ Expansion

“We’re still in the expansion category, albeit at a slower rate,” Jim McNerney, chairman of the Business Roundtable and chief executive officer of Boeing Co., said on a conference call with reporters today. Survey results showing a deterioration in investment plans should be read as “not that it’s fallen off a cliff, rather it has moderated,” he said.

Other reports today showed fewer workers filed claims for jobless benefits last week and the number of signed contracts to buy existing homes fell in August.

Applications for jobless benefits dropped by 37,000 to 391,000, the fewest since April, a report from the Labor Department showed. An agency official said the data probably reflected a “mistiming” in the seasonal factors used to modify the figures.

Pending home sales fell 1.2 percent in August after dropping 1.3 percent the previous month, the National Association of Realtors said.

Buying Plans

Two of the comfort index’s three components declined. The measure of personal finances fell to minus 11.6 from minus 7.5. The buying climate index was minus 61, the lowest level since the aftermath of the Lehman Brothers Holdings Inc. bankruptcy in October 2008, compared with minus 59.9 the prior week. The gauge of American’s views on the economy rose to minus 86.4 from minus 88.9.

Confidence among part-time workers plunged 9.9 points to minus 72.2. The so-called underemployment rate, which includes workers who’d prefer a full-time position and people who want to work but have given up looking, rose to 16.2 in August, matching June as the highest reading this year, Labor Department figures show.

Homeowner sentiment also dropped to the lowest ever, falling to minus 49.5 from minus 47.1. Earlier this week, the S&P/Case-Shiller index of property values in 20 cities fell 4.1 percent in July from the same month in 2010. The home-price barometer has dropped for 10 consecutive months.

Shares Slump

Europe’s sovereign debt crisis and recent data showing a weakening U.S. recovery have also fueled deteriorating sentiment and sent equity markets lower. The Dow Jones Industrial Average dropped 6.4 percent last week, the worst loss since October 2008.

“Plenty of factors inform the public’s sour economic views, from gyrations in the stock market, the still-flattened housing market and declining real incomes to Washington’s games of chicken over economic remedies,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement. “But the chief irritant is the jobs market.”

On the political front, the outlook among registered independent voters fell to the lowest level since October 2009. Republicans’ confidence also slumped, while Democrats became less pessimistic.

President Barack Obama has been traveling the country this week to promote his $447 billion job creation plan. Speaking in Denver on Sept. 27, Obama said the nation needs to reset its priorities to assure future growth.

The president’s package includes tax cuts and spending aimed at spurring hiring to trim the nation’s 9.1 percent unemployment rate, which has restrained consumers’ spending and darkened their outlooks.

--With assistance from Shobhana Chandra in Washington. Editors: Vince Golle, Carlos Torres

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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