Consumer confidence climbed more than forecast in August as Americans turned less pessimistic about the outlook for jobs, easing concern households will retrench.
The Conference Board’s confidence index rose to 53.5 from a five-month low of 51 in July, according a report today from the New York-based research group. Other reports showed business activity slowed in August and home prices held up in the three months to June.
The gain in confidence strengthens Federal Reserve Chairman Ben S. Bernanke’s view that the recovery will pick up in 2011. The report also showed consumers were less hopeful about current job prospects even as their outlook improved, raising the risk of a disappointing employment report later this week.
“We’re in a bit of a slowdown in what’s a fitful, moderate recovery,” said John Ryding, chief economist at RDQ Economics in New York and a former Fed researcher. “We won’t see a drop in consumer spending, but growth will be fairly modest.”
Some Fed officials were concerned the central bank’s decision to prevent its securities holdings from shrinking would send the wrong signal that policy makers were ready to resume large-scale asset purchases, minutes of their Aug. 10 meeting showed today. A few said the effect of the plan “likely would be quite small,” while others voiced concern that further shocks would cause “significant slowing in growth.”
Lack of Consensus
The debate shows the challenge Bernanke may face in achieving consensus for any additional monetary stimulus to reverse a slowdown in growth and reduce joblessness more quickly.
Stocks were little changed, erasing earlier gains, on concern lack of agreement may delay Fed action to spur the economy should growth falter. The Standard & Poor’s 500 Index closed at 1,049.33 at 4 p.m. in New York. Treasury securities rose, sending the yield on the 10-year note down to 2.47 percent from 2.53 percent late yesterday.
The median forecast of economists surveyed by Bloomberg News projected the sentiment index would rise to 50.7. Estimates of the 68 economists polled ranged from 47.5 to 55. The measure averaged 45 in 2009 and 97 during the expansion that ended in December 2007.
A report from the Institute for Supply Management-Chicago Inc. showed its business barometer fell to 56.7 this month, the lowest since November, from 62.3 in July. Figures greater than 50 signal expansion.
“We look for an abatement of the momentum that we’ve been seeing in manufacturing,” said John Herrmann, a senior fixed- income strategist at State Street Global Markets LLC in Boston, who forecast the barometer would fall to 56.9.
Another report showed home prices in 20 U.S. cities rose more than forecast in June from a year earlier, reflecting the influence of a government tax incentive and a sign the market was stabilizing before sales plunged in July.
Karl Case, co-creator of the S&P/Case-Shiller home-price index, said he saw a “lot of positive stuff” in the report.
The housing market is “not quite stabilized yet, but it looks like it’s beginning to,” Case said in a radio interview today on “Bloomberg Surveillance” with Tom Keene. “So I’d say another couple of years before you can really declare victory.”
The Conference Board’s gauge of expectations for the next six months rose to 72.5 from 67.5. The measure of present conditions decreased to 24.9, the lowest since February, from 26.4 a month earlier.
The share of consumers who said jobs are currently plentiful fell to the lowest level of the year, and those who said jobs are hard to get increased.
“Employment concerns continue to weigh heavily on consumers’ attitudes,” Lynn Franco, director of the group’s consumer research center, said in a statement. “Consumers remain apprehensive about the future.”
Saks Inc., the New York-based luxury retail chain, this month reported a loss for the second quarter ended July 31 and said it will remain “cautious” for the second half of 2010 even as it plans to make investments including new stores.
“It’s a fragile environment,” Stephen Sadove, chief executive officer, said in a Bloomberg Television interview on Aug. 18. “The consumer is still skittish. They’re very much focused on value.”
A Labor Department report on Sept. 3 is projected to show companies hired 42,000 workers in August, down from 71,000 the prior month, and the jobless rate increased to 9.6 percent from 9.5 percent, according to the median forecast of economists surveyed.
The drop in the present conditions index, which is more closely correlated with the unemployment rate, “suggests that this Friday’s employment report will be soft,” Kevin Logan, chief U.S. economist at HSBC Securities USA Inc. in New York, wrote in a research note today.
Bernanke presented a scenario for continued expansion at the annual Kansas City Fed symposium in Wyoming last week as households rebuild savings, banks increase lending and companies become more willing to hire. He said policy makers have the tools to spur growth if needed and are prepared to use them, in a rebuff to skeptics who argued the central bank is out of ammunition.
The economy is a top issue for voters in the November congressional elections, and polls show the public is increasingly skeptical of President Barack Obama’s performance. Public approval for his handling of the economy was at 41 percent in an Aug. 11-16 Associated Press-GfK survey, an all- time low and down from 50 percent last July.