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U.S. Consumer Sentiment Unexpectedly Falls to Six-Month Low on Job Outlook

Consumer sentiment unexpectedly decreased in May to the lowest level in six months as Americans grew concerned over the outlook for jobs and the economy, while a measure of home prices dropped to a nine-year low.

The Conference Board’s confidence index dropped to 60.8 from a revised 66 reading in April, figures from the New York- based private research group showed today. Home prices decreased 5.1 percent in the first quarter from the same time in 2010, according to data from S&P/Case-Shiller. A separate report today showed manufacturing cooled.

Consumer finances have been squeezed by rising costs of food and fuel and erosion in home equity, causing spending to slow. A drop in gasoline prices from a three-year high may bring households some relief, while a resumption of supplies disrupted by the earthquake and tsunami in Japan will benefit companies like Deere & Co. (DE), giving the economy a lift in the last six months of 2011.

“The economy has slipped into a soft patch,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “In the second half, we’ll do better than we’ve been doing. As economic activity picks up, the labor market will improve as well.”

Stocks rose on speculation the European Union will pledge more aid to Greece. The Standard & Poor’s 500 Index increased 1.1 percent to 1,345.2 at the 4 p.m. close in New York.

Home prices were down 4.2 percent from the previous three months, the biggest one-quarter drop since the first three months of 2009, according to the report from S&P/Case-Shiller. At 125.41, the group’s national index was the lowest since the second quarter of 2002.

More Foreclosures

A backlog of foreclosures poised to reach the market means prices may stay depressed, dissuading builders from taking on new-home construction projects. Unemployment at 9 percent and stricter lending conditions are signs that any recovery in housing may take years.

“With the foreclosure pipeline still full to bursting, it’s hard to see this downward pressure on prices abating,” said Paul Dales, a senior U.S. economist at Capital Economics Ltd. in Toronto. “I wouldn’t be surprised to see prices continue to fall this year and maybe into next year.”

The S&P/Case-Shiller index of property values in 20 cities fell 3.6 percent in March from the same time in 2010, the biggest year-over-year decline since November 2009, the group also said. At 138.16, the gauge was the weakest since March 2003.

Broad-based Drop

Nineteen of the 20 cities in the index showed a year-over- year decline, led by a 10 percent slump in Minneapolis. The exception was Washington, where values climbed 4.3 percent. Prices in 12 markets dropped to fresh lows in March from their 2006, 2007 peaks: Atlanta; Charlotte, North Carolina; Chicago; Cleveland; Detroit; Las Vegas; Miami; Minneapolis; New York; Phoenix; Portland, Oregon; and Tampa, Florida.

“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation,” David Blitzer, chairman of the Case-Shiller index committee at S&P, said in a statement.

Also today, the Institute for Supply Management-Chicago Inc. said its business barometer fell to 56.6 this month, the lowest since November 2009, from 67.6 in April. Figures greater than 50 signal expansion. Economists forecast the gauge would fall to 62, according to the median estimate in a Bloomberg News survey.

Japan Disaster

Manufacturers that led the recovery as exports rose and business investment picked up are facing challenges from higher raw materials costs and the effects of Japan’s earthquake and tsunami. Deere, the world’s largest farm-equipment maker, raised its 2011 earnings forecast less than analysts estimated as disruptions from Japan and costlier inputs lowered profit.

“There is a consistent story across regions that manufacturing was slowing during the month, although it’s unclear for how long or what’s next,” said Jim O’Sullivan, global chief economist at MF Global Inc. in New York, who forecast the index would fall to 58. “Japan supply-chain issues appear to be part of the story, in addition to the impact of the jump in oil and gasoline prices earlier in the year.”

The consumer confidence report, in which results are compiled based on responses up to May 18, runs counter to other figures on sentiment. The Thomson Reuters/University of Michigan final index of consumer sentiment increased to 74.3 in May from 69.8. The Bloomberg Consumer Comfort Index ended a monthlong slide, rising to minus 48.4 in the week to May 22 from a nine- month low the prior week.

Survey Results

Estimates for consumer confidence ranged from 60 to 71 in the Bloomberg survey of 68 economists. The measure averaged 98 during the expansion that ended in December 2007.

The group’s measure of present conditions decreased to 39.3 from 40.2 a month earlier. The gauge of expectations for the next six months slumped to 75.2, the lowest since October, from 83.2.

The share of respondents expecting more jobs over the next six months dropped, as did the proportion projecting their incomes will rise.

Consumer spending cooled to a 2.2 percent annual pace in the first quarter following a 4 percent gain in the previous three months as food and fuel prices climbed. The economy grew at a 1.8 percent pace last quarter after expanding at a 3.1 percent rate.

The economy created 244,000 jobs in April, the most since May 2010, even as the jobless rate climbed to 9 percent. Data from the Labor Department due on June 3 may show payrolls climbed about 180,000 this month, according to the median forecast in a Bloomberg survey.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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