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Consumer Confidence Dropped Last Week to Lowest Since May

August 11, 2011

Press Release

The Bloomberg Consumer Comfort Index Was Minus 49.1 in the
Period to August 7

New York — Consumer confidence dropped last week to the lowest
level since mid-May as American high earners, homeowners and
those working full time turned more pessimistic.

The Bloomberg Consumer Comfort Index was minus 49.1 in the
period to Aug. 7, down from minus 47.6 the prior week and the
second-lowest level in a year. The measure was less than five
points away from the record low of minus 54 reached in November
2008, during the depths of the last recession.

For full CCI results, see: http://www.bloomberg.com/cci

The biggest one-week plunge in stocks since 2008 followed by the
downgrade of the country’s top credit rating may even be
unnerving those who are fully employed and earning more than
$100,000 a year. Rising concern among such households, which
have the wherewithal to spend, poses a risk to a recovery that
Federal Reserve policy makers said this week was already
advancing “considerably slower” than projected.

“The recognition by consumers that they will bear the
disproportionate burden of costs due to the downgrade, in
addition to stock market volatility and another weak employment
report, sufficiently increased consumer discomfort,” said Joseph
Brusuelas
, a senior economist at Bloomberg LP in New York. The
comfort gauge is poised to keep falling in coming weeks, he
said.

Claims for jobless benefits unexpectedly fell last week to a
four-month low, signaling the recent slowdown in payroll gains
is due to a lack of hiring rather than more firings, another
report showed today. Applications for unemployment insurance
payments decreased 7,000 in the week ended Aug. 6 to 395,000,
the fewest since early April, the Labor Department said in
Washington.

Stocks rose after benchmark gauges sank yesterday to 11- month
lows. The Standard & Poor’s 500 Index climbed 1.6 percent to
1,138.19 at 9:40 a.m. in New York. Treasury securities fell,
sending the yield on the 10-year note up to 2.20 percent from
2.11 percent late yesterday.

Sentiment among Americans employed full-time fell to minus 43.6
last week, the lowest point since the recession ended in June
2009. The gauge for people making more than $100,000 declined to
minus 21, the weakest since November 2009. The decreases
indicate Americans with the means to shop may be hesitant to
open their wallets.

Consumer spending dropped in June for the first time in almost
two years as savings climbed, Commerce Department figures showed
last week. The U.S. economy grew less than forecast in the
second quarter after almost stalling at the start of the year,
another report from the agency showed.

The Federal Reserve’s Open Market Committee said in a statement
this week that it may keep the benchmark interest rate close to
zero through mid-2013 to try to bolster the recovery.

The comfort index is “a short step away from minus 50, the level
historically associated with the deepest depths of recession,”
said Gary Langer, president of Langer Research associates LLC in
New York, which compiles the index for Bloomberg.

Two of the comfort measure’s three subcomponents declined last
week. The gauge of personal finances dropped to its lowest level
since the start of July, while the buying climate index
decreased to a more than two-month low. Stubbornly high fuel
prices may explain the deterioration.

After reaching a three-month low of $3.54 a gallon in late June,
the average price of regular gasoline climbed throughout July
and averaged $3.69 last week.

The gauge of Americans’ views of the economy, which is the
difference between those with positive versus negative opinions,
was minus 85.2 after minus 86.5 the previous week. Some 52
percent of respondents said the economy is in poor shape, the
largest share in 16 months.

The S&P 500’s 7.2 percent slump last week was the biggest since
November 2008, which may explain why sentiment decreased among
those with the highest incomes. Weekly changes in the overall
comfort gauge have moved in the same direction as the Dow Jones
Industrial Average
about 80 percent of the time since the
measure’s inception in 1985, according to Langer.

Today’s comfort report also showed sentiment among Democrats
dropped to the lowest level since March 2010, a possible concern
for President Barack Obama as he seeks re- election next year.
Confidence among Republicans fell to a 12- week low.

The turmoil in financial markets may be hurting General Motors
Co. (GM), the biggest U.S. automaker. GM this week said its
forecast for 2011 U.S. sales may be in jeopardy.

“Consumer confidence is pretty fragile right now,” Don Johnson,
GM’s vice president of U.S. sales, said in a presentation. “With
the recent volatility in the stock market, we know that’s a
concern we really have to watch closely.”

The Bloomberg comfort index, which began in December 1985, has
averaged minus 45.0 this year compared with minus 45.7 for all
of 2010 and minus 47.9 in 2009, the year the recession ended,
the report showed.

The Bloomberg Consumer Comfort Index is based on responses to
telephone interviews with a random sample of 1,000 U.S.
residents age 18 and over. Each week, 250 respondents are asked
for their views on the economy, personal finances and buying
climate. Results are combined with data from the previous three
weeks, and the percentage of negative responses is subtracted
from the share of positive views on each question, with the
results then averaged.

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.

Field work for the index is done by Social Science Research
Solutions in Media, Pennsylvania.

Contact for Bloomberg:

Meghan Womack, +1 212-617-8514, mwomack4@bloomberg.net