Bloomberg News

Consumer Comfort in U.S. Little Changed From Recession Levels

December 13, 2011

Dec. 8 (Bloomberg) -- Consumer confidence in the U.S. was little changed for a second week, holding at a level typically reached during past recessions.

The Bloomberg Consumer Comfort Index was at minus 50.3 in the period ended Dec. 4, after a reading of minus 50.2 the prior week. The gauge has been at minus 50 or worse for 11 of the past 12 weeks, an unprecedented stretch of pessimism in its 26-year history.

An unexpected decline in unemployment last month coupled with growing payrolls may be preventing household confidence from sinking even deeper. The European debt crisis and squabbling between President Barack Obama and Congress over the budget, will probably keep households discouraged during the holiday shopping season and into 2012.

“Consumer confidence appears to be stabilizing, albeit near historically low levels,” said Joseph Brusuelas, a senior economist at Bloomberg L.P. in New York. “However, that stabilization is quite tenuous. Like the U.S. economy, consumer confidence is at risk due to the events unfolding in Europe and the increasingly divisive rhetoric coming out of Washington.”

Fewer Americans than forecast filed applications for unemployment benefits last week, reflecting a pullback following the Thanksgiving holiday and a decrease in seasonal firings which may signal the labor market is on the mend. Jobless claims dropped by 23,000 to 381,000 in the week ended Dec. 3, the fewest since February, Labor Department figures showed today.

Shares Drop

Stocks dropped after European Central Bank President Mario Draghi said he didn’t signal plans to purchase more bonds last week, damping speculation the central bank will act. The Standard & Poor’s 500 Index fell 0.5 percent to 1,254.98 at 9:40 a.m. in New York. Treasury securities also decreased, with the yield on the benchmark 10-year note up to 2.05 percent from 2.03 percent late yesterday.

Two of the three components of the weekly comfort index slumped further. The measure of Americans’ views of the current state of the economy slid to minus 89.7 last week from minus 88.5 in the prior period. The buying climate index dropped to minus 52.6 from minus 49.4. The gauge of personal finances improved to minus 8.5 from minus 12.7.

The Bloomberg comfort index, which began in December 1985, has averaged minus 46.8 this year compared with minus 45.7 for all of 2010 and minus 47.9 in 2009, the worst full-year reading on record, the report showed.

Confidence among consumers with only a high school degree fell last week to minus 65.1, the lowest in data going back to 1990. Those with incomes exceeding $100,000 were the glummest since early September, which may be rooted in fears a collapsing euro zone economy could hurt stock prices, according to Brusuelas.

‘In the Muck’

“If the EU does not disintegrate over the next few weeks, it could portend a real increase in equity prices,” which would stimulate spending among wealthier households, Brusuelas said. “On the other hand, if the EU disintegrates, they throw in the towel, and we are back in the muck.”

Relief may be in sight. An announcement last week that the Federal Reserve would join five central banks in making it easier for lenders to obtain dollars helped the Dow Jones Industrial Average rally 7 percent in the five days ended Dec. 2, following the largest drop for a Thanksgiving week since 1932.

Given recession-level confidence, household purchasing has, at the same time, held up. Spending during Thanksgiving weekend jumped 9.1 percent from a year earlier to $398.62 per person, the Washington-based National Retail Federation said. U.S. auto sales rose to a 13.6 million seasonally adjusted annualized rate in November, the best month since August 2009, according to Autodata Corp.

Demographic Breakdown

The Bloomberg index of college graduates’ comfort climbed to the highest level since July. Among those earning from $75,000 to $99,999, the index rose to the highest level since February.

Other sentiment indicators have rebounded. The Conference Board’s index of confidence in November had the biggest monthly gain since April 2003. The Thomson Reuters/University of Michigan final index of sentiment rose last month to the highest level since June.

“If you look with the U.S. consumer, somehow, somewhere, the confidence has been coming back slowly but steadily, and we can see that at the level of the street, at the level of the mall,” Paul Marciano, chief executive officer of Los Angeles- based clothing retailer Guess? Inc., said during a Nov. 30 call with analysts.

Unemployment Drops

Better job prospects may have supported some of the improved views. Employment climbed by 120,000 workers in November, and the jobless rate dropped to 8.6 percent, the lowest since March 2009, from 9 percent, Labor Department figures showed last week.

“Thin gruel for the holidays is better than no gruel at all,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement. “Unemployment, moreover, cracked 9 percent last week for the first time since March; should its recovery continue, consumer sentiment likely would trend up.”

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 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: Carlos Torres, Vince Golle

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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