Consumer confidence in the U.S. dropped last week to the lowest level in more than two months, paced by growing dissatisfaction among women and high earners.
The Bloomberg Consumer Comfort Index was minus 47.6 in the period to July 31, the lowest since May, compared with minus 46.8 the prior week. Confidence among women fell to the lowest level since October 2009, while Americans making more than $100,000 a year were the most pessimistic since November 2009.
The biggest one-week drop in the Standard & Poor’s 500 Index in a year, political wrangling over raising the debt ceiling and a stagnant job market probably weighed on consumers’ moods. The loss of confidence heightens the risk that consumer spending, which accounts for 70 percent of the economy, will be slow to rebound in the second half of the year.
“The lack of momentum in the economy and the lack of improvement in labor market conditions just continue to weigh on consumers,” said John Herrmann, senior-fixed income strategist at State Street Global Markets LLC in Boston. What’s more, “the debt ceiling debate was unnerving,” he said.
Another report today indicated limited improvement in the job market. Applications for unemployment insurance payments fell by 1,000 in the week ended July 30 to 400,000, the fewest in four months. Economists forecast a climb to 405,000 claims, according to the median estimate in a Bloomberg News survey.
Democrats More Pessimistic
Today’s comfort report showed sentiment among Democrats fell to the lowest level since February, while confidence among Republicans dropped to a nine-week low. Democrats were 8 points more pessimistic than Republicans, the biggest gap since March.
The report underscores “the impact of political brinksmanship on already tender economic sentiment,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement.
President Barack Obama signed a bill this week raising the U.S. debt ceiling by at least $2.1 trillion and reducing federal spending by $2.4 trillion or more, after party leaders spent months wrangling over the measure.
The Bloomberg Consumer Comfort Index has been minus 40 or less, a region typically associated with recessions and their aftermath, for 170 of the past 172 weeks. That’s “an unprecedented period in the dumps, with every tentative breakout attempt, to date, quickly cut short,” said Langer.
Two of the comfort index’s three subcomponents declined last week. The measure of personal finances fell back into negative territory after two weeks of positive readings. The buying climate index fell to the lowest level since early June. A backup in 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 to $3.71 at the end of last week. The comfort gauge reached a nine-month low of minus 49.4 in May after gasoline climbed to $3.99 a gallon.
The gauge of Americans’ views of the economy, which is the difference between those with positive versus negative opinions, rose to minus 86.5 from a more than two-year low. Even here, the news wasn’t good. Fifty percent of respondents gave the economy a poor rating, the worst of four categories. That’s the highest share in more than a year.
Falling share prices may be to blame for the drop in sentiment 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.
Stocks slumped today. The Standard & Poor’s 500 Index dropped 1.7 percent to 1,238.68 at 10:36 a.m. in New York.
The outlook among those with a full-time job declined to minus 39.3, the weakest reading since March, indicating that even employed consumers may be hesitant to shop, today’s report showed.
Consumer spending dropped in June for the first time in almost two years as savings climbed, Commerce Department figures showed earlier this 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 Bloomberg comfort index, which began in December 1985, has averaged minus 44.7 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 measure has been less volatile than other confidence gauges, hovering this year within about 5 points of the 2011 average. In contrast, the Thomson Reuters/University of Michigan index of consumer sentiment dropped in July to its lowest level in more than two years. The Conference Board’s index unexpectedly rose in July from an eight-month low.
Smaller employment gains and lagging consumer confidence are holding back the economic recovery, said Jenny Lin, senior U.S. economist for Ford Motor Co. (F) U.S. employers in July probably boosted payrolls at a pace that failed to reduce the jobless rate, according to a Bloomberg News survey before a Labor Department report tomorrow.
“The budget negotiations likely contributed to the drop in confidence, which has cast a shadow on the modest recovery so far,” Lin said on an Aug. 2 conference call with analysts. “The modest labor market recovery is holding back income gains and consumer confidence.”
The Dearborn, Michigan-based automaker reported an increase in sales in July that trailed analyst estimates.
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.
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