Bloomberg News

Consumer Comfort Stagnates as U.S. Lawmakers Debate Budget

December 13, 2012

Consumer Comfort Stagnates as U.S. Lawmakers Debate Budget

First-time claims for unemployment benefits dropped by 29,000 to 343,000 in the week ended Dec. 8, the fewest since a four-year low in the period ended Oct. 6, the Labor Department said. Photographer: Frank Polich/Bloomberg

Consumer confidence in the U.S. stagnated last week, showing a lack of improvement since October as lawmakers continue to search for common ground on taxes and government spending in 2013.

The Bloomberg Consumer Comfort Index slipped to minus 34.5 in the period ended Dec. 9, the lowest level in six weeks, from minus 33.8. The reading was the 12th straight above minus 40, the level associated with recessions and their aftermath. The decrease was within the margin of error of 3 percentage points.

Appreciating property values and cheaper gasoline have given consumers reason to be upbeat as the year draws to a close. At the same time, limited wage gains associated with a 7.7 percent jobless rate will probably do little to help households should lawmakers fail to avert a broad-based increase in taxes in 2013.

“Households are likely coming around to estimating the risk associated with a decline in after-tax income that would result due to the fiscal shock,” said Joseph Brusuelas, senior economist at Bloomberg LP in New York. “The risk to the economic outlook is that the recent improvement in consumer sentiment will see retrenchment, similar to what was observed during the debt-ceiling debate in summer 2011, that will offset the stabilization in the housing market and falling gasoline.”

Other reports today showed jobless claims fell last week to the lowest level since early October, while retail sales rebounded in November. A 0.3 percent gain in purchases reflected more demand for autos, electronics and clothes after a 0.3 percent drop in October, according to Commerce Department data.

Jobless Claims

First-time claims for unemployment benefits dropped by 29,000 to 343,000 in the week ended Dec. 8, the fewest since a four-year low in the period ended Oct. 6, the Labor Department said.

Stocks fluctuated, after the longest gain in the Standard & Poor’s 500 Index since August. The S&P 500 rose less than 0.1 percent to 1,428.92 at 9:35 a.m. in New York.

Two of the three components of the index decreased last week. The comfort index’s buying climate gauge dropped to minus 36.2 from minus 33.4 the previous week. The barometer measuring Americans’ views on the state of the economy fell to minus 62.6, the lowest in six weeks, from minus 61.5 in the prior period.

The personal finances gauge rose to minus 4.6 from minus 6.6 the prior week.

The overall index was 15.4 points better than it was during the same period last year. In 2012, the gauge has averaged minus 38.5 and is on pace for its best annual showing in five years.

Growth Improvements

“Recent economic indicators have been mixed, suggesting reasons for the current course of consumer views,” Gary Langer, president of Langer Research Associates, which compiles the index for Bloomberg, said in a statement. Improvements in growth, “housing and gas prices have been tempered by less- positive data on manufacturing and consumer spending. There’s the open question of the possible impact of uncertainty caused by the fiscal-cliff negotiations.”

Home prices rose 4.4 percent in the 12 months through September after a 4.5 percent gain in August that was the largest in six years, according to adjusted data from the Federal Housing Finance Agency. A gallon of regular gasoline cost $3.30 yesterday, the cheapest since January, figures from the American Automobile Association show.

The economy is also still creating jobs. Employers boosted payrolls by 146,000 workers in November, the most since August, according to data from the Labor Department.

To spur the economy and hiring, the Federal Reserve yesterday said it will buy $45 billion a month of Treasury securities starting in January, expanding its asset-purchase program.

FOMC Statement

“The committee remains concerned that, without sufficient policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor-market conditions,” the Fed’s Open Market Committee said after its final meeting of the year yesterday in Washington.

The Fed said interest rates will stay low “at least as long” as the unemployment rate remains above 6.5 percent and if inflation “between one and two years ahead” is projected to be no more than 2.5 percent.

A potential burden for consumers is higher tax rates next year. If Congress doesn’t change the policies currently in place, more than $600 billion in tax increases and spending cuts will start taking effect Jan. 1. Senate Majority Leader Harry Reid said yesterday he was “very, very disappointed” with the lack of progress on the issue.

Other Data

Limited progress on budget talks may be weighing on other measures of sentiment. The Thomson Reuters/University of Michigan confidence index slumped to a four-month low in December from a five-year high in November. The decrease was the biggest in more than a year.

Today’s figures showed confidence among those earning $50,000 or more slumped by the most since July, falling to minus 15 from minus 9.2. Sentiment among Americans 65 or older fell by the most since mid-August. Midwesterners and college graduates were the most pessimistic since early October.

While confidence numbers have been holding up so far, the shift in focus to the possible changes in fiscal policy are a concern, Sandy Cochran, chief executive officer of Cracker Barrel Old Country Store Inc. (CBRL:US), said during a Nov. 29 earnings call.

Disposable Income

“For our guests, the issue will be about their confidence in their job and that’s probably the first and foremost, and then disposable income,” she said.

The Bloomberg Consumer Comfort Index, compiled by Langer Research Associates in New York, conducts telephone surveys with a random sample of 1,000 consumers 18 and older. 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.

To contact the reporter on this story: Alexander 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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