Bloomberg News

Consumers Most Negative on U.S. Economy Outlook Since Recession

October 20, 2011

Oct. 20 (Bloomberg) -- Consumer confidence in the U.S. economic outlook slumped in October to the lowest level since the recession, highlighting the challenges facing the biggest part of the economy.

The Bloomberg Consumer Comfort Index’s monthly expectations gauge dropped to minus 45, the worst reading since February 2009. The weekly measure of current conditions was minus 48.4 for the period ended Oct. 16, up from minus 50.8 the prior week that was close to a record low.

A volatile stock market, little hiring and a lack of wage gains are souring Americans’ moods, raising the risk that the consumer spending that accounts for 70 percent of the economy will slump. Policy makers from Federal Reserve Chairman Ben S. Bernanke to President Barack Obama are taking steps to spur growth in the world’s largest economy.

The report “is indicative of the sour mood of the American public,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. They now “expect economic conditions to deteriorate regardless of the recent increase in economic activity.”

A separate report today showed little improvement in the labor market. First-time claims for jobless insurance dropped by 6,000 to 403,000 in the week ended Oct. 15, according to Labor Department figures released in Washington. The median forecast of economists surveyed by Bloomberg News called for a decline to 400,000.

Stocks declined on concern that Germany may postpone a European debt-crisis summit. The Standard & Poor’s 500 Index fell 0.2 percent to 1,207.88 at 9:38 a.m. in New York.

Components Increase

The weekly comfort index showed gains in all three of its components. The measure of Americans’ views of the current state of the economy rose to minus 85.8 last week from minus 87.1 in the prior period. The gauge of personal finances climbed to minus 7.7 from minus 11.5. The buying climate index moved up to minus 51.5 from minus 53.7.

The improvements are only “a tepid advance from the brink,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement. “Any way you slice it, consumer sentiment is in its longest, deepest slump in at least a quarter century.”

The Bloomberg comfort index, which began in December 1985, has averaged minus 46.1 this year compared with minus 45.7 for all of 2010 and minus 47.9 in 2009, the year the recession ended, the report showed.

Consumers’ outlook on the economy echoes the results of the Fed’s Beige Book survey released yesterday.

Beige Book

“Overall economic activity continued to expand in September, although many districts described the pace of growth as ‘modest’ or ‘slight,’” the central bank said. Conditions in the labor market were “little changed, on balance, in September” and several districts saw “only limited and selective demand for new hires.”

Bernanke this month told a congressional committee that the two-year-old economic recovery is “close to faltering,” while repeating his forecast for a pickup in growth.

The economy is holding up, reports showed yesterday. Housing starts jumped 15 percent last month to a 658,000 annual rate, the most since April 2010.

At the same time, stocks continue to gyrate, adding to Americans’ worries about their wealth. Equities declined yesterday on concern about the strength of the U.S. economy and an impasse over European bailout talks. A day earlier, the benchmark gauge rose to the highest level since August.

Michigan Sentiment

Other data point to erosion in confidence. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped in October as Americans’ outlooks for the economy and their finances slumped to the lowest level since 1980.

Eden Prairie, Minnesota-based SuperValu Inc., the owner of Save-A-Lot and Albertsons grocery stores, is among companies affected by the “fragile” consumer and economic environment, according to Chief Executive Officer Craig Herkert.

“With recent headlines about the ongoing challenges facing today’s consumer, it comes as no surprise that shoppers continue to show signs of thrift,” Herkert said yesterday on a conference call with analysts. “Consumer confidence remains low and unemployment remains high. As long as Americans continue to express broad financial concerns, personal spending will be constrained.”

Survey Respondents

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 most recent reading is based on the average of responses over the previous four weeks.

The monthly expectations gauge is measured separately and reflects the responses of 500 households polled over the past two weeks.

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: Vince Golle, Carlos Torres

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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


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