Americans Hold Dimmest View on Economic Outlook Since January

The most Americans in six months said the economy in July was getting worse, indicating the slowdown in hiring is dimming moods as the third quarter begins.

The share of households viewing the U.S. as heading in the wrong direction rose to 36 percent, the highest since January, from 33 percent in June. The Bloomberg monthly expectations gauge was minus 11, matching June as the lowest level since January. The weekly Bloomberg Consumer Comfort Index fell to minus 37.9 in the period ended July 15, the lowest in a month.

Limited wage gains and unemployment stuck above 8 percent risk further slowing consumer spending and leaving the U.S. more vulnerable to a global slowdown. There is also growing pessimism little is being done in Washington to avoid the so-called fiscal cliff at the end of the year, when higher taxes and automatic spending cuts kick in, raising the risk of recession.

“A soft labor market and political tensions surrounding potential changes in tax policy are weighing on consumer sentiment,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Consumers are concerned about their incomes and have become much more cautious about spending. The economy is limping into the third quarter.”

A report from the Labor Department today showed applications for jobless benefits increased by 34,000 to 386,000 in the week ended July 14. The median estimate of economists in a Bloomberg News survey called for 365,000 claims. A Labor Department spokesman said the figures were skewed by a change in the timing of annual auto factory layoffs.

Stocks Rise

The Standard & Poor’s 500 Index rose 0.2 percent to 1,375.29 at 9:32 a.m. in New York amid better-than-estimated earnings at companies including International Business Machines Corp. and EBay Inc.

Two of the three components of the weekly consumer comfort index deteriorated. A measure of personal finances declined to a four-week low of 0.7 from 1.9, and an index of the buying climate eased to minus 41.7 from minus 41.5. A measure of Americans’ views of the state of the economy held at minus 72.8.

Confidence among full-time workers dropped to minus 31.9 last week, the lowest since February.

The report is “the latest blow for economic sentiment, already in the midst of an extended slump,” said Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg.

The sentiments in the comfort report were reflected in Federal Reserve Chairman Ben S. Bernanke’s testimony to Congress this week, in which he projected “frustratingly slow” progress on unemployment and noted decelerating economic activity and depressed consumer sentiment, Langer said.

Labor Market

Fed policy makers “are looking for ways to address the weakness in the economy should more action be needed to promote a sustained recovery in the labor market,” Bernanke said in response to questions from lawmakers on July 17.

Employers added 80,000 jobs to payrolls last month, fewer than economists forecast, while the jobless rate was unchanged at 8.2 percent. Retail sales unexpectedly fell for a third month in June, Commerce Department data showed this week.

“The economy in North America continues to be fragile as consumer confidence lags and job growth remains anemic,” Vernon Nagel, chairman and chief executive of Acuity Brands Inc. (AYI), a lighting fixture maker, said during a July 2 earnings call. “We expect the macroeconomic environment for the balance of 2012 to continue to be influenced by external concerns, including fiscal and monetary policy in U.S and European debt crisis.”

The Bloomberg consumer comfort readings underscore the U.S. political divide over the fiscal cliff looming at year-end, when tax cuts on wages, capital gains, dividends and estates are scheduled to lapse, today’s report showed. Democrats’ confidence exceeded Republicans’ for a record 17th consecutive week.

Democrats, Republicans

The comfort index for Democrats rose to minus 23.6 last week, while the gauge for Republican voters fell to minus 42, the lowest since February. The difference between the two groups is the widest on record.

Among independents, a key swing group in this year’s presidential election, the measure dropped to minus 48.7, the weakest this year.

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.

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

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