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Confidence of U.S. Consumers Dropped in August to Lowest Level Since 2008

Confidence among U.S. consumers dropped in August to the lowest level since November 2008, pointing to little pickup the biggest part of the economy.

The Thomson Reuters/University of Michigan final index of consumer sentiment fell to 55.7 this month from 63.7 in July. The gauge was projected at 55.8 after a preliminary reading of 54.9, according to the median forecast of economists surveyed by Bloomberg News.

Americans’ confidence was shaken by unemployment exceeding 9 percent, falling home values and a slump in stock prices this month. Waning optimism may indicate consumer spending, which rose in the second quarter at the slowest pace in more than a year, will stay restrained.

“Consumers, when they see the recent stock-market activity, that is certainly a burden on people’s confidence,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “Many of our problems today in the economy are now in the hands of elected officials, and consumers in general are not exactly confident that they can put us on a stronger economic path.”

Stocks declined after Federal Reserve Chairman Ben S. Bernanke indicated there was no new plan to stimulate an economy that’s slowed this year. The Standard & Poor’s 500 Index dropped 0.4 percent to 1,155.12 at 10:33 a.m. in New York.

While Bernanke sought to reassure investors and the public that growth is safe in the long run and that the Fed still has tools to aid the recovery if needed, he stopped short of indicating that the central bank will move ahead with a third round of government bond-buying.

Fundamentals Not Altered

“Although important problems certainly exist, the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said in prepared comments at an annual forum hosted by the Kansas City Fed in Jackson Hole, Wyoming. “It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.”

Estimates of the 61 economists surveyed for the confidence measure ranged from 53 to 63.7, according to the Bloomberg survey. The index averaged 89 in the five years leading up to the recession that began in December 2007 and ended in June 2009.

The economy grew at a 1 percent annual pace in the second quarter, less than initially estimated, Commerce Department figures showed today. Household purchases, which account for about 70 percent of the world’s largest economy, rose 0.4 percent, the smallest gain since the end of 2009.

Bloomberg Measure

Today’s confidence figures parallel the Bloomberg Consumer Comfort Index, which stabilized last week at a level that’s within striking distance of an all-time low.

The Bloomberg Consumer Comfort Index was minus 47 in the week to Aug. 21 compared with minus 48.3 reading the previous period that halted a three-week slide. The gain was within the survey’s 3-point margin of error. The figure is close to minus 54 in January 2009, which matched the worst reading in the history of the series dating back to 1985.

The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, decreased to 68.7 from 75.8 the prior month. The preliminary August reading was 69.3.

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 47.4, the lowest since May 1980, from 56. The preliminary outlook gauge was 45.7.

Inflation Expectations

Consumers in today’s confidence report said they expect an inflation rate of 3.5 percent over the next 12 months, compared with 3.4 percent in the prior survey and in July.

Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 2.9 percent rate of inflation, the same as the previous month.

“U.S. consumer confidence hit a new low in August,” Art Winkleblack, chief financial officer at H.J. Heinz Co., said on an Aug. 23 teleconference with analysts. “This result was even lower than in the depths of the Great Recession of the first quarter of 2009; and in fact, is at the lowest level since 1980. As a result, U.S. consumers are reacting by cutting back on discretionary spending.”

Pittsburgh-based Heinz, the world’s biggest ketchup maker, repeated its forecast for full-year profit, saying it will be as much as $3.32 a share. Analysts predicted $3.35, the average of 17 estimates in a Bloomberg survey.

Employment Headwind

Limited employment gains are a headwind for consumers. U.S. employers added 117,000 jobs in July, less than the average for the first half of 2011, according to the Labor Department. The jobless rate has been at or higher than 9 percent for four straight months through July.

“Certainly, macro-economic events give pause for thought as to the potential consequences on consumer confidence,” Matthew Moellering, chief financial officer for apparel maker Express Inc. (EXPR), said on an Aug. 24 conference call with analysts. The Columbus, Ohio-based company said comparable sales in the second-quarter slowed to 6 percent after rising 8 percent last year.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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

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