Consumer Sentiment in U.S. Falls to Lowest Since December

Confidence among U.S. consumers declined in June to the lowest level this year as Americans grew more pessimistic about prospects for the economy.

The Thomson Reuters/University of Michigan final index of sentiment fell to 73.2 this month from 79.3 in May. The gauge was projected to hold at the preliminary reading of 74.1, according to the median forecast of economists surveyed by Bloomberg News.

Unemployment exceeding 8 percent for 40 straight months is limiting wage growth and restraining household spending, which accounts for 70 percent of the economy. At the same time, Europe’s debt crisis is prompting volatility in the stock market, making Americans feel less wealthy.

“People now when they see the stock market wavering and they hear the evening news reports talk about the seriousness of the ongoing situation in Europe and what that could mean for the financial system, once again they do worry,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before today’s report.

Estimates for the Michigan confidence measure ranged from 72 to 76, according to the Bloomberg survey. The June decline was the first in 10 months. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.

Stocks Climb

U.S. stocks joined a global rally after European leaders reached an agreement that alleviated concern banks will fail. The Standard & Poor’s 500 Index rose 1.9 percent to 1,353.88 at 10:21 a.m. in New York.

Consumer spending stalled in May as slower job gains and a lack of wage growth prompted Americans to cut back, according to another report today. Purchases were unchanged, the weakest since November, after a 0.1 percent rise the prior month that was smaller than initially reported, Commerce Department figures showed.

Michigan’s reading for June is at odds with the Bloomberg measure of sentiment, which climbed last week the highest level in two months as optimism over personal finances helped alleviate growing apprehension about the economy.

The decline in the Michigan survey for June reflected more pessimism among households with incomes above $75,000 as they viewed the economy and their own financial prospects less favorably.

Current Conditions

The Michigan survey’s index of current conditions asks Americans whether they’re better off than they were a year ago and if they think it’s a good time to buy big-ticket items like cars. In June that measure dropped to 81.5 from 87.2.

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, decreased to 67.8 from 74.3, which was the highest since July 2007.

Employment growth has waned relative to its pace earlier this year, when it reached a high of 275,000 in January. Applications for jobless benefits hovered last week near the highest level of the year, showing continuing weakness in the U.S. labor market.

Claims for unemployment insurance payments decreased by 6,000 to 386,000 in the week ended June 23 from a revised 392,000 the prior period that matched the most this year, according to Labor Department figures issued today in Washington.

Labor View

Today’s report showed that for the first time in six months, reports of job losses have outnumbered employment gains, while more Americans said they expect increases in the jobless rate rather than declines.

Confidence in economic policies held near all-time lows, with 10 percent saying they were favorable, today’s data showed.

The smallest wage gains in a year and unemployment exceeding 8 percent are taking a toll on shoppers. Retail sales fell 0.2 percent in May for a second month, Commerce Department figures showed June 13. Sales excluding car dealerships slumped by the most in two years.

“We saw the consumer get a lot more cautious in May,” Clarence Otis, chairman and chief executive officer at Darden, said on a June 22 conference call with analysts. “And that was not just at Red Lobster, but across the restaurant industry” and “generally across the overall consumer environment beyond restaurants.”

Darden, owner of the Red Lobster, Olive Garden and LongHorn Steakhouse restaurant chains, reported fourth-quarter revenue that trailed analysts’ estimates because of an unexpected drop in sales at its older establishments. The company said customers grew more cautious in May, and it will focus more on affordability in its promotional offers.

Spending Ability

“Moderation in employment is relating to the moderation in income growth and that is directly going to impact consumers spending ability,” Ameriprise Financial’s Price said. “Retailers are justified to worry about future prospects when they see job growth slowing and income slowing because it just means less spending potential for the months ahead.”

Consumers in today’s confidence report said they expect an inflation rate of 3.1 percent over the next 12 months, compared with 3 percent in the prior month’s survey. Over the next five years, Americans expected a 2.8 percent rate of inflation, compared with 2.7 percent in the May report.

To contact the reporter on this story: Caroline Fairchild in Washington at cfairchild2@bloomberg.net

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

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U.S. Consumer Spending Was Unchanged

Scott Eells/Bloomberg

A pedestrian walks past a sale sign in the window of a jewelry store in New York, U.S., on Tuesday, June 26, 2012.

A pedestrian walks past a sale sign in the window of a jewelry store in New York, U.S., on Tuesday, June 26, 2012. Photographer: Scott Eells/Bloomberg

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June 29 (Bloomberg) -- Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, talks about the U.S. economy, the European Union leaders' agreement to ease terms on emergency loans for Spanish banks and the Supreme Court's ruling on health-care overhaul. (Source: Bloomberg)