Confidence among U.S. consumers cooled in April from a one-year high, a sign the moderation in job growth may limit the biggest part of the economy.
The Thomson Reuters/University of Michigan’s preliminary index of sentiment dropped to 75.7 from 76.2 last month. The measure was projected to be unchanged, according to a median forecast in a Bloomberg News survey of economists.
Tempered optimism follows the slowest month of job growth since October and a drop in weekly earnings that may restrain household purchases that account for about 70 percent of the economy. Another report showed consumer prices advanced at a slower pace in March, giving Federal Reserve policy makers room to maintain low borrowing costs.
“There’s less supporting an improvement in sentiment than there was a few months ago,” said Jeremy Lawson, a senior U.S. economist at BNP Paribas in New York. “Disposable incomes of consumers are still being squeezed. That does make it difficult for consumption to accelerate from here.”
Estimates for the Michigan sentiment gauge from the 71 economists surveyed by Bloomberg ranged from 74 to 78.5. The index averaged 64.2 during the last recession. It averaged 89 in the five years before the 18-month economic slump that ended in June 2009.
Stocks fell, giving the Standard & Poor’s 500 Index its biggest weekly decline of the year, as confidence waned, China’s growth slowed and the cost of insuring against a Spanish default rose to a record. The S&P 500 decreased 1.3 percent to 1,370.26 at the close in New York, extending the weekly drop to 2 percent.
Today’s sentiment data follow yesterday’s Bloomberg Consumer Comfort Index, which eased after reaching a four-year high. The index was minus 32.8 in the week ended April 8 from the minus 31.4, the highest since March 2008.
The Michigan index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy big-ticket goods like cars, declined to a four-month low of 80.6 in April from 86 a month earlier.
The gauge of consumer expectations for six months from now, which more closely projects the direction of consumer spending, climbed to 72.5 this month, the highest since September 2009, from 69.8 in March.
“The sentiment numbers will improve in the months ahead,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit. Price was the most accurate forecaster of Michigan sentiment in the two years through last month, according to the latest data compiled by Bloomberg. The recent decline in “gas prices will stick and the job numbers will improve. The path ahead is still positive.”
The labor market showed signs of cooling in March. Employers added 120,000 jobs during the month, half as many as in February, Labor Department figures showed last week. The unemployment rate fell to 8.2 percent, a three-year low, as more Americans left the labor force.
A report yesterday showed first-time applications for jobless benefits rose last week to 380,000, the highest since Jan. 28, Labor Department statistics showed.
At the same time, gasoline prices have leveled off close to $4 a gallon. The average cost of a gallon was $3.90 yesterday, down from a 10-month high of $3.94 that was reached April 5, according to AAA, the nation’s largest automobile association.
The consumer-price index climbed 0.3 percent after a 0.4 percent gain in February as the run-up in energy costs eased, according to today’s Labor Department data. Prices increased 2.7 percent in the 12 months ended in March, the smallest 12-month gain in a year.
Companies like Levi Strauss & Co. and Jos. A. Bank Clothiers Inc. may find it difficult to raise prices as 12.7 million Americans remain unemployed, almost twice the number at the end of the last expansion. Less inflation would give the Fed room to keep interest rates near zero to spur the economic recovery and boost employment.
Fed officials, who’ve said energy costs will probably subside, have indicated they will hold off on more monetary stimulus unless prices rise more slowly than their 2 percent target or the economic expansion falters, according to the minutes of their March 13 meeting. Their preferred price gauge, issued by the Commerce Department and tied to consumer spending, rose 2.3 percent in the year ended in February.
Fed Vice Chairman Janet Yellen endorsed the central bank’s “highly accommodative” policy this week, stating the Fed probably won’t meet its goal of full employment for years while inflation will remain in check.
“I anticipate that we will fall far short in achieving our maximum employment objective, and I expect inflation to remain at or below” the Fed’s goal, Yellen said in a speech in New York. Economic growth “will be sufficient to lower unemployment only gradually from this point forward,” Yellen said.
Consumers in today’s confidence report said they expect an inflation rate of 3.4 percent over the next 12 months, down from 3.9 percent in March.
Over the next five years, the range tracked by Fed policy makers, Americans expect a 3 percent rate of inflation, matching March as the highest since June.
Even with the recent pickup since late last year, consumer sentiment is still limited, according to Brian Jenkins, chief financial officer at Dallas-based Dave & Buster’s Inc., which operates restaurant entertainment complexes.
“They are better than they were a couple of years ago, but it’s certainly not a robust tailwind as it relates to the consumer right now,” Jenkins said in an April 12 earnings call.
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