U.S. Michigan Consumer Sentiment Index Unexpectedly Falls as Outlook Sours

Confidence among U.S. consumers unexpectedly dropped in October as Americans’ outlooks for the economy and their finances slumped to the lowest level since 1980.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 57.5 this month from 59.4 in September. The median estimate of economists surveyed by Bloomberg News called for a reading of 60.2. The gauge of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 47, the lowest since May 1980.

Consumers may be questioning the recovery’s durability as incomes stagnate, home prices fall and policy makers debate ways to strengthen the recovery. Faster job growth may hold the key to bigger gains in consumer spending that accounts for about 70 percent of the economy.

“Sentiment is consistent with a still-struggling U.S. economy, and if confidence were to hold at these levels, that would reflect bad news on the job market,” said James Shugg, a senior economist at Westpac Banking Corp. in London. “There are still real concerns among consumers about the outlook.”

Estimates of the 73 economists surveyed by Bloomberg for the confidence measure ranged from 57 to 64. The difference between the median projection and the actual figure was the biggest in percentage terms since November 2010. The index averaged 89 in the five years leading up to the recession that began in December 2007 and ended in June 2009.

Stocks pared gains after the report, with the Standard & Poor’s 500 Index rising 0.9 percent to 1,214.39 at 10:40 a.m. in New York after increasing as much as 1.5 percent.

September Sales

The confidence figures show a larger-than-projected increase in retail purchases in September may not persist. Sales rose 1.1 percent, the biggest since February, according to the Commerce Department in Washington. The median forecast of 85 economists surveyed by Bloomberg called for a 0.7 percent rise in purchases last month.

Today’s confidence figures mirror the Bloomberg Consumer Comfort Index, which hovered last week near a record low. The Bloomberg gauge of sentiment was minus 50.8 in the week to Oct. 9, marking the fourth consecutive reading lower than minus 50, something that has happened just three previous times in its 26- year history.

The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, decreased to 73.8 from 74.9 the prior month.

Inflation Expectations

Consumers in today’s confidence report said they expect an inflation rate of 3.2 percent over the next 12 months, compared with 3.3 percent in the prior survey.

Over the next five years, the range tracked by Federal Reserve policy makers, Americans expect a 2.7 percent rate of inflation, the lowest since September 2010, after 2.9 percent last month.

Recession fears receded some last week when Labor Department figures showed U.S. employers added 103,000 workers, more than forecast, in September after payrolls were revised higher the prior two months. The jobless rate held at 9.1 percent.

Stocks have also rebounded after touching the lowest level in more than a year at the beginning of the month, which may help lift moods among consumers. The Standard & Poor’s 500 Index has risen 9.5 percent through yesterday since hitting the low on Oct. 3.

At the same time, a prolonged housing market slump, concerns over Europe’s sovereign debt crisis and stagnating household incomes are still darkening consumer sentiment.

‘Dour Mood’

“There has been a fairly dour mood by consumers in the summer and early fall timeframe, and I think it will continue on for some time until we really see true economic uptick in the U.S. and in Europe,” Blake Jorgensen, chief financial officer of closely-held Levi Strauss & Co., said in an Oct. 11 teleconference.

Levi Strauss, the maker of jeans and Dockers pants, said expects weaker consumer spending this holiday season after higher prices deterred back-to-school shoppers in the U.S. Levi’s gross margin, the share of sales remaining after subtracting the cost of goods sold, narrowed to 47 percent in the quarter from 49 percent a year earlier, the San Francisco- based company reported before Jorgensen spoke.

To contact the reporter on this story: Alexander Kowalski in Washington at akowalski13@bloomberg.net

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

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U.S. Michigan Consumer Sentiment Index Fell to 57.5 in Oct.

Scott Eells/Bloomberg

Pedestrians pass in front of a store advertising a sale.

Pedestrians pass in front of a store advertising a sale. Photographer: Scott Eells/Bloomberg