Consumer Sentiment Falls More Than Forecast

Confidence among U.S. consumers declined more than forecast in February as growing optimism about job prospects failed to ease concern wages will stagnate.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped to 72.5 from 75 in January, a one-year high. The median estimate in a Bloomberg News survey called for 74.8. Another report showed the nation’s trade gap widened in December.

A 22-cent increase in the price of a gallon of gasoline this year is pinching household finances, serving as a reminder that the pickup in hiring has yet to boost incomes. Consumer spending may hold up as the report showed more Americans believed the jobless rate will drop than at any time in the past three decades.

“It’s likely due to the gas prices and some payback for the strong gains we’ve seen in recent months,” said Gus Faucher, a senior economist at PNC Financial Services Group Inc. in Philadelphia. “The recovery is going to continue and spending will be good, but not great.”

Stocks dropped on concern that plans to help Greece avoid default were unraveling. The Standard & Poor’s 500 Index decreased 0.9 percent to 1,339.26 at 3:23 p.m. in New York.

Reports from Europe today showed Swiss consumer prices dropped in January by the most in more than two years as the franc’s ascent lowered the cost of imported goods.

China Slowing

Elsewhere, China’s exports and imports fell in January for the first time in two years and lending grew less than estimated, adding to signs growth is slowing in the world’s second-largest economy.

The trade deficit in the U.S. widened in December to a six- month high as a strengthening economy prompted bigger gains in imports than exports, data from the Commerce Department showed. The gap increased 3.7 percent to $48.8 billion from $47.1 billion in November. Purchases of goods and services produced overseas were the strongest in more than three years on record demand for capital equipment like machinery and semiconductors.

Estimates for consumer sentiment in the Bloomberg survey of 71 economists ranged from 71 to 79.5. The index averaged 64.2 during the last recession and 89 in the five years leading to the 18-month slump that ended in June 2009.

Today’s report contrasts with another confidence measure released yesterday. The Bloomberg Consumer Comfort Index climbed to minus 41.7, a one-year high, in the period ended Feb. 5 from minus 44.8 the prior week.

Expectations Dim

The Michigan survey’s index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, fell to 68 this month from 69.1 in January.

The share of consumers who believed unemployment will fall reached the highest level since 1984, according to the report.

Fewer firings and faster job growth have helped to boost sentiment since the end of the third quarter, when the confidence gauge was 59.4. The four-week average of jobless claims fell last week to the lowest since April 2008, Labor Department data showed yesterday.

The unemployment rate in January declined to 8.3 percent, the lowest since February 2009, while the economy generated 243,000 jobs, the most in nine months, Labor Department data showed on Feb. 3.

Signs of Strength

Other reports have pointed to strength in the economy.

Investors are accepting lower yields to hold debt from speculative-grade companies as confidence in the economy grows. Yields on such debt sank to 7.76 percent yesterday, the lowest since Aug. 3, according to Bank of America Merrill Lynch index data. The drop in borrowing costs has helped spur $42.3 billion in high-yield sales in the U.S. this year, the busiest two-month period since May and June of 2011, according to data compiled by Bloomberg.

The average American celebrating Valentine’s Day this year will spend $126, an increase of 8.5 percent over 2011 and the highest in a decade of surveys by the National Retail Federation. The poll of 9,317 consumers was conducted from January 4-11, 2012 by BIGinsight. It has a margin of error of plus or minus 1.0 percent.

By contrast, the Conference Board’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, dropped to 79.6 from 84.2 the prior month.

Outlook for Incomes

Six out of every 10 households said their incomes will probably not increase over the next year, according to the report. Consumers in today’s confidence report said they expect an inflation rate of 3.2 percent over the next 12 months, down from 3.3 percent in January.

Over the next five years, the range tracked by Federal Reserve policy makers, Americans expect a 2.9 percent rate of inflation, up from 2.7 percent in January.

Higher fuel costs pose a threat to confidence. A gallon of regular unleaded gasoline climbed to $3.50 yesterday from $3.28 at the end of 2011, according to AAA, the nation’s largest automobile association. Fuel prices dropped to a 10-month low of $3.21 on Dec. 20.

“While we’re cautiously optimistic that portions of the U.S. economy are improving, we aren’t planning for a big increase in market demand,” Thomas Falk, chief executive officer of Dallas-based Kimberly-Clark Corp. (KMB), the maker of Kleenex tissues, said on a Jan. 24 conference call.

Hourly Earnings

Incomes have yet to follow. Hourly earnings were up 1.9 percent in January on average from the same month in 2011, the smallest year-to-year gain since April, last week’s report from the Labor Department showed. For production workers, the 1.5 percent increase was the smallest in records going back to 1965.

Rising stock prices are helping some Americans feel wealthier. The S&P 500 gained 7.5 percent so far this year through yesterday, the best start to a year since 1991.

Consumer purchases increased 2 percent in the fourth quarter, less than the median forecast of economists surveyed, the Commerce Department figures showed last month. Household purchases climbed 2.2 percent in 2011 after an increase of 2 percent in 2010, the weakest two-year performance of any post- World War II expansion.

To contact the reporters on this story: Robert Willis in Washington at bwillis@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 Gauge Fell in February

David Paul Morris/Bloomberg

A woman slides her credit card to buy gasoline in San Francisco.

A woman slides her credit card to buy gasoline in San Francisco. Photographer: David Paul Morris/Bloomberg

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Feb. 9 (Bloomberg) -- Jim Glassman, senior economist at JPMorgan Chase & Co., talks about the U.S. labor market. Glassman also discusses Federal Reserve monetary policy and the housing market. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)