U.S. Consumer Sentiment at Second-Lowest Level of Year in Bloomberg Index

U.S. consumer confidence last week fell to the second-lowest level this year as Americans grew more pessimistic about the world’s largest economy.

The Bloomberg Consumer Comfort Index was minus 49.3 in the period to Sept. 4 compared with minus 49.1 the previous week. This year’s low of minus 49.4 was reached in May, when gasoline prices were the highest in three years. While the drop was within the survey’s 3-point margin of error, the index has been stuck below minus 40 -- the level associated with recessions or their aftermath -- since the end of February.

Job creation stagnated in August, the unemployment rate held above 9 percent and hourly wages retreated, giving households little to cheer about. Pessimism stretches across social, economic and political lines, posing a threat to consumer spending that accounts for 70 percent of the economy.

“Falling sentiment indicates signs of growing distress in the consumer sector,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. The results reflect “a labor market that has seized up and the lagged effects of inflation that is effectively reducing the purchasing power of households.”

The Labor Department today said applications for jobless claims increased by 2,000 to 414,000 last week. The median estimate of economists in a Bloomberg News survey called for claims to fall to 405,000.

Stocks dropped as jobless claims increased and the European Central Bank said risks to the economic recovery have intensified. The Standard & Poor’s 500 Index declined 0.1 percent to 1,196.97 at 9:40 a.m. in New York.

Trade Deficit

Another report showed the U.S. trade deficit shrank more than forecast in July as exports climbed to a record, helping allay concerns the economy is faltering. The gap narrowed 13.1 percent, the most since February 2009, to $44.8 billion.

The confidence gauge, which began December 1985, has averaged minus 45.3 this year, compared with minus 45.7 for 2010 and minus 47.9 in 2009, the year the last recession ended, the report showed.

The index of Americans’ views of the state of the economy dropped to minus 88.7 last week, the worst reading since April 2009, from minus 87.3 the prior week. The gauge of personal finances climbed to minus 5.8 from minus 6.1. A measure of the buying climate rose to minus 53.5 from minus 54.

The gauge “has slid from very bad to plain awful since mid-July,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement. It reflects “the public’s deep economic discontent crossing social lines.”

Lower Incomes

Confidence among the lowest-income earners, or those making less than $15,000 a year, dropped to minus 90.8, a record low in data available since the mid-1990s. For those who earn more than $100,000 a year, the index worsened to minus 18.2, the 17th consecutive week of negative readings that in part reflect stock market losses.

Unemployed Americans’ confidence index dropped to minus 61.6 last week, the lowest level since November.

Labor Department figures released on Sept. 2 showed payrolls were unchanged, the weakest reading since September 2010. The median forecast of economists surveyed by Bloomberg called for a gain of 68,000.

The jobs report has raised the political stakes for President Barack Obama as he prepares to address a joint session of Congress today. The Bloomberg confidence survey results suggest “he’ll face a tough audience,” Langer said.

Democrats’ Sentiment

Sentiment among Democrats declined to minus 62.2 last week, the lowest reading since February 2009, a month after Obama took office. Confidence among Republicans dropped to minus 48.4. For political independents, the confidence index rose to minus 41.9.

The struggling job market is weighing on households, adding to pessimism about the economy among executives at companies like Church & Dwight Co., the Princeton, New Jersey-based maker of Arm & Hammer baking soda and Trojan condoms.

Consumer spending power is “as bad as ever, and I think it’s going to get worse,” James Craigie, chief executive officer, told investors yesterday at a conference hosted by Barclays Capital in Boston. “I wouldn’t be surprised at all if unemployment goes over 10 percent within the next six to 12 months. This is as ugly or uglier business environment I’m seeing than ever in the past.”

The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 consumers aged 18 and over. Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate; the percentage of negative responses is subtracted from the share of positive views and divided by three. The most recent reading is based on the average of responses over the previous four weeks.

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. The margin of error for the headline reading is 3 percentage points.

Field work for the index is done by SSRS/Social Science Research Solutions in Media, Pennsylvania.

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 at cwellisz@bloomberg.net