U.S. Economy: Confidence Increases More Than Forecast

Confidence among U.S. consumers rose in October from a seven-month low as households turned less pessimistic on the outlook for the economic recovery.

The Conference Board’s sentiment index climbed to 50.2, exceeding the median forecast in a Bloomberg News survey, from a revised 48.6 in September, according to figures from the New York-based research group today. Another report showed home- price gains receded in August after a tax credit lapsed.

Americans’ views on job availability and wage prospects soured, according to the confidence figures, highlighting the risk that unemployment near 10 percent will limit spending, which accounts for 70 percent of the world’s biggest economy. Wal-Mart Stores Inc. is among retailers seeing sales drop off at the end of each month as households run low on cash.

“Confidence is still very depressed,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “For many it’s still going to feel like a recession until employment comes back.”

Most stocks fell, led by consumer-staples companies, as results at companies from Kimberly-Clark Corp. to U.S. Steel Corp. disappointed investors. The Standard & Poor’s 500 Index was little changed at 1,185.64 at the 4 p.m. close in New York. About eight stocks retreated for every seven that rose on U.S. exchanges.

Economists surveyed forecast the sentiment index would increase to 49.9 from a previously reported 48.5 for September, according to the median of 75 projections. Estimates ranged from 45 to 53.

Confidence Breakdown

The increase in confidence was led by a gain in the gauge of expectations for the next six months. The Conference Board’s measure of present conditions also advanced.

The share of people who said jobs were plentiful fell to the lowest level of the year and income expectations were the weakest since April 2009.

“Confidence is still at a very low level,” said James O’Sullivan, global chief economist at MF Global Ltd. in New York. “We’re not seeing any hard evidence of a strong bounce back yet.”

Wal-Mart Chief Executive Officer Michael Duke yesterday said consumer confidence is “not very positive” because of the high level of unemployment. Toward the end of every month customers begin reducing the quantity of goods they buy and the amount they spend, he said at a press conference in New Delhi.

“The consumer in the U.S. is still under a lot of pressure,” Duke said. “With the high levels of unemployment in the U.S., there is still an overhang of concern that does impact consumer spending.”

Home Values

In addition to unemployment, concern over deteriorating property values may also be weighing on Americans’ psyche.

The S&P/Case-Shiller index of property values covering 20 cities increased 1.7 percent from August 2009, the smallest year-over-year gain since February, the group said in New York. The median forecast of 27 economists surveyed by Bloomberg projected a 2.1 percent increase. The measure is 28 percent below its peak in July 2006.

The end of a government credit worth as much as $8,000 precipitated a decrease in purchases that has yet to be reversed, keeping pressure on prices in coming months. At the same time, record foreclosures will dump more properties on the market and unemployment will restrain sales, indicating housing’s role in the economic recovery will be limited.

The government incentive gave housing a temporary lift in late 2009 and early this year. The tax break initially required contracts be signed by the end of November, pushing sales of existing homes to an almost three-year high that month, according to figures from the National Association of Realtors.

Credit’s Influence

After the deadline was extended through April, purchases tumbled in July to the lowest level since comparable records began in 1999. September sales were still short of June’s pace, the agents’ group reported yesterday.

“The recovery that started in 2009 has petered out,” Karl Case, one of the co-founders of the index that bears his name, said in an interview on Bloomberg Radio’s “Bloomberg Surveillance” with Tom Keene from Wellesley, Massachusetts. He said excess supply was the main challenge to a recovery in housing. “That’s the big negative: the vacancy inventory.”

The gauge fell 0.3 percent in August from the prior month after adjusting for seasonal variations, the second consecutive decrease and the biggest drop since April 2009. Prices reflect a three-month average, indicating the August readings are still being influenced by the earlier drop in sales.

Other Price Gauge

A report today from the Federal Housing Finance Agency showed home prices fell 2.4 percent in August from a year earlier. Measured from July, prices rose 0.4 percent, according to FHFA.

Both the S&P/Case-Shiller index and the FHFA measure are based on repeat sales data that compare prices of the same properties over time. The former covers all properties, while the later only takes into account sales of homes with mortgages that conform to rules set by Fannie Mae or Freddie Mac.

Foreclosure moratoria at JPMorgan Chase & Co. and other banks, along with government investigations into faulty paperwork, threaten to further delay a recovery as houses slated for repossession take longer to come to market.

The economy is a top issue for voters now with a week left before the November congressional elections. Polls are showing the public is increasingly skeptical of President Barack Obama’s performance. Obama’s job approval in the three days ended Oct. 24 was 43 percent, compared with an average 57 percent last year, according to a poll from Princeton, New Jersey-based Gallup Inc.

To contact the reporters on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net; Bob Willis in Washington at bwillis@bloomberg.net

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

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