Confidence among consumers fell in April to a three-month low as Americans grew more pessimistic about the outlook for the economy.
The Thomson Reuters/University of Michigan final index of consumer sentiment declined less than forecast, to 76.4 from 78.6 a month earlier. The median projection in a Bloomberg survey was 73.5 after a preliminary April reading of 72.3.
The figures indicate consumer spending may cool after climbing in the first quarter by the most since the end of 2010 and slow the pace of economic growth. Safeway Inc. (SWY:US) is among companies noting that shoppers, faced with higher payroll taxes and limited job growth, remain cost-conscious even as rebounding home prices help stabilize household wealth.
“We are seeing slightly softer growth but on the other hand household wealth looks pretty good,” Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh, said before the report. “The economy is continuing to expand but we do have some drags.”
Another report today from the Commerce Department showed the economy expanded in the first quarter at a 2.5 percent annualized rate, up from the 0.4 percent pace in the final three months of 2012. Household purchases, which account for about 70 percent of the economy, advanced at a 3.2 percent annualized rate, the most since the fourth quarter of 2010.
Forecasts for consumer sentiment in the Bloomberg survey ranged from 70 to 80. The index averaged 64.2 during the recession that ended in June 2009 and 89 in the five years prior to the 18-month slump.
The Michigan survey contrasts with Bloomberg’s measure of sentiment, which held close to a five-year high last week. The Bloomberg Consumer Comfort Index was minus 29.9 in the week ended April 21, down from minus 29.2, which was the highest since January 2008. Households were the most optimistic about their finances in 10 months, the comfort index showed.
The Michigan survey’s current conditions index, which measures Americans’ view of their personal finances, fell to 89.9 in April from 90.7 last month. The preliminary reading was 84.8.
The index of expectations six months from now dropped to 67.8 this month from 70.8 in March. The preliminary April reading was 64.2.
A report earlier showed retail sales fell last month by the most since June, showing household spending ended the first quarter on softer footing. The 0.4 percent decrease followed a 1 percent gain in February, Commerce Department figures showed today in Washington. Department stores and electronics dealers were among the weakest showings.
The labor market also cooled, adding 88,000 jobs last month, the smallest increase since June, the Labor Department reported April 5. Average hourly earnings were unchanged in March from the prior month, the weakest showing since October.
At Safeway (SWY), the second-largest U.S. supermarket chain, customers are shopping with price and budgets in mind, Chairman and Chief Executive Officer Steve Burd said.
“I still believe that it’s a very sluggish recovery,” Burd said on an April 25 earnings call. “I don’t really think you have a really strong economy until consumer confidence is, hits 90. We haven’t seen 90 in probably over five years. So I think consumers are still affected by that and trying to be very careful with how they spend their dollars.”
At the same time, the housing market’s recovery is driving up property values and improving household balance sheets, a source of strength for spending and the economy. Stocks also are adding to net worth, while cheaper prices at the gas pump give consumers more money to spend on other goods and services.
“We’re now seeing a really nice growth factor in new construction,” Jeff Fettig, chairman and chief executive officer at Whirlpool Corp. (WHR:US), said on an April 24 earnings call. “We’re starting to see the pickup from existing home sales, but pure, pure discretionary is still very, very weak.”
Consumers in today’s confidence report expect an inflation rate of 3.1 percent over the next 12 months, compared with 3.2 percent in March. Over the next five years, Americans expect a 2.9 percent rate of inflation.
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