Bloomberg News

U.S. Consumer Sentiment Gauge Falls to Lowest This Year

July 27, 2012

Confidence among U.S. consumers dropped in July to the lowest level this year as the labor market and broader economy showed few signs of improvement.

The Thomson Reuters/University of Michigan final index of sentiment declined to 72.3 this month from 73.2 in June. The gauge was projected to hold at the preliminary reading of 72, according to the median forecast of economists surveyed by Bloomberg News.

A slowdown in hiring in the second quarter, which may reflect companies’ concerns about demand as Europe’s economy falters, is damping moods of Americans whose spending accounts for about 70 percent of the economy. Another report today showed the expansion cooled in the second quarter.

The drop “may well be more worries about Europe and fiscal policy and just the jitters in the equity market recently,” said James O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. At the same time, “we’re not seeing a collapse in confidence.”

Gross domestic product, the value of all goods and services produced in the U.S., rose at a 1.5 percent annual rate in the second quarter after a 2 percent gain in the first three months of the year, Commerce Department figures showed.

The report showed household purchases, which account for about 70 percent of the economy, also grew at a 1.5 percent annual rate, the weakest in a year.

Stocks climbed on speculation European leaders will act to alleviate the region’s debt crisis. The Standard & Poor’s 500 Index rose 0.7 percent to 1,369.55 at 10:36 a.m. in New York.

Estimates for the Michigan confidence measure ranged from 69 to 75, according to the Bloomberg survey of 63 economists. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.

Bloomberg Measure

Michigan’s reading for July is in line with the Bloomberg measure of sentiment, which declined last week to a two-month low as consumers showed concern about making purchases.

The Michigan survey’s index of current conditions asks Americans whether they’re better off than they were a year ago and if they think it’s a good time to buy big-ticket items like cars. In July, that measure increased to 82.7 from 81.5 at the end of June.

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, decreased to 65.6 from June’s 67.8. The preliminary reading for July was 64.8.

Employment growth has waned relative to its pace earlier this year, when payrolls climbed 275,000 in January. The unemployment rate has held above 8 percent for 41 consecutive months -- the longest stretch in the post-World War II era. The Labor Department is scheduled to release July figures on Aug. 3.

Jobless Claims

Claims for unemployment insurance payments decreased by 35,000 in the week ended July 21 to 353,000, according to Labor Department figures issued yesterday in Washington. Changes in the annual auto plant shutdowns that occur this time of year have made it difficult to adjust the data for seasonal variations, the Labor Department has said.

The stubborn unemployment rate helps explain why Americans are hesitant to boost their spending. Retail sales declined 0.5 percent in June, the third straight decrease, Commerce Department figures showed July 16. Receipts excluding automobiles and service stations fell 0.2 percent.

“The U.S. consumer is still being pretty conservative about how they’re spending money,” J. Patrick Doyle, president and chief executive officer of Domino’s Pizza, Inc. (DPZ:US) said on a July 25 earnings call. “And until we get some of the uncertainty resolved around the economy and taxes and et cetera, I think the consumer is going to stay pretty conservative.”

Consumers in today’s confidence report said they expect an inflation rate of 3 percent over the next 12 months, compared with 3.1 percent in the prior month’s survey. Over the next five years, Americans expected a 2.7 percent rate of inflation, compared with 2.8 percent in the June report.

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

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


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