Bloomberg News

Consumers in U.S. Are Most Negative on Economy Since Recession

October 27, 2011

Oct. 27 (Bloomberg) -- Consumer confidence declined last week as Americans’ views of the economy sank to the lowest since the recession, highlighting the challenges facing the recovery.

The Bloomberg Consumer Comfort Index fell to minus 51.1 in the week ended Oct. 23, the lowest in a month, from minus 48.4 the prior period. Ninety-five percent of those surveyed had a negative opinion about the economy, the worst since April 2009 and one percentage point shy of a record high.

Morass in the housing market, slow hiring and limited wage growth that have soured attitudes may contain consumer spending after a third-quarter pickup. The Obama administration and some Federal Reserve officials said shoring up residential real estate would help speed the recovery.

“Consumer sentiment remains mired knee-deep in the big muddy of an epic housing mess, household deleveraging and a broken labor market,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The specter of a European debt crisis and the likelihood of no additional policy support here at home will probably keep sentiment at or near historically low levels.”

The U.S. economy grew in the third quarter at the fastest pace in a year as gains in consumer spending and business investment helped support a recovery on the brink of faltering. Gross domestic product rose at a 2.5 percent annual rate, matching the median forecast of economists surveyed by Bloomberg News and up from a 1.3 percent gain in the prior quarter, according to Commerce Department figures. Household purchases, the biggest part of the economy, increased at a more-than- projected 2.4 percent pace.

Jobless Claims

A separate report showed that fewer Americans filed applications for unemployment assistance last week, while those on benefit rolls dropped to a three-year low, signaling limited improvement in the labor market.

First-time jobless claims decreased by 2,000 to 402,000 in the week ended Oct. 22, the Labor Department said. The number of people collecting unemployment benefits fell in the previous week by 96,000 to 3.65 million, the fewest since September 2008.

Stocks climbed after the reports and as European leaders agreed to expand a bailout fund to $1.4 trillion in a bid to tame the region’s debt crisis. The Standard & Poor’s 500 Index rose 2.5 percent to 1,273.15 at 9:39 a.m. in New York.

The weekly comfort index declined in all three of its components. The measure of Americans’ views of the current state of the economy fell to minus 90 last week from minus 85.8 in the prior period. The gauge of personal finances dropped to minus 11.6 from minus 7.7. The buying climate index declined to minus 51.8 from minus 51.5.

Ratings of Economy

Positive ratings of the U.S. economy dropped to 5 percent, the lowest since April 2009, from 7.1 percent the prior week.

“Indeed, more than two years after the recession officially ended, consumer relief is nowhere in sight,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement. “Long-term unemployment, underemployment and the still-lagging housing market all help explain the dire state of consumer sentiment.”

The Bloomberg comfort index, which began in December 1985, has averaged minus 46.2 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.

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. The Conference Board’s confidence gauge slumped this month to the lowest level since March 2009.

‘Challenging Economy’

“We see a challenging economy and pressure on consumer spending continuing,” Dorvin Lively, chief financial officer of consumer-electronics retailer RadioShack Corp., said on an Oct. 25 conference call with analysts. The Fort Worth, Texas-based consumer-electronics retailer reported weaker-than-projected third-quarter earnings.

About 76 percent said it was a bad time to purchase goods and services they want and need, today’s confidence figures showed. The share has exceeded 70 percent since early 2008, the longest such run on record.

Some 56 percent of Americans said they had a negative view of their finances, the most since May and five points from the all-time high set in June 2009.

Consumer sentiment among homeowners declined last week, approaching the lowest on record.

Home Prices

Federal Reserve Bank of New York President William C. Dudley this week said falling home prices pose “a serious impediment to a stronger economic recovery.”

President Barack Obama unveiled a plan to let homeowners refinance mortgages regardless of how much their houses have dropped in value, expanding a government effort to chip away at one of the economy’s most unyielding problems.

Lawmakers and analysts briefed this week on the plan by the independent Federal Housing Finance Agency estimate they will help less than 1 million borrowers -- and perhaps as few as 600,000 -- of the 11 million whose mortgages are higher than the value of their homes.

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 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: Timothy R. Homan in Washington at thoman1@bloomberg.net

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


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