Consumer Comfort in U.S. Falls on Growth Concern: Economy

Consumer confidence in the U.S. dropped last week to the lowest level in two months on mounting concern over the state of the economy.

The Bloomberg Consumer Comfort Index fell to minus 39.7 in the week ended July 29 from minus 38.5 in the previous period. Americans’ views on the economy slumped to a five-month low. Other reports showed claims for jobless benefits increased and factory orders dropped.

A rebound in gasoline prices and rising food costs caused by drought in parts of the Midwest may curb the household spending that accounts for about 70 percent of the economy. Federal Reserve policy makers yesterday said they are prepared to ease further if necessary as the jobless rate remains above 8 percent in the fourth year of the recovery, and the lingering European debt crisis threatens to further slow the expansion.

“Consumers are skittish,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Spending’s going to remain soft. I think the consumer will continue to support the recovery. I just don’t think they’re going to be able to lead it.”

The number of applications for unemployment benefits climbed by 8,000 to 365,000 in the week ended July 28, as annual auto retooling shutdowns continued to influence the reading, Labor Department figures showed. The median forecast of 47 economists surveyed by Bloomberg News called for an increase to 370,000.

Shares Fall

Stocks declined, sending the Standard & Poor’s 500 Index lower for a fourth day, as European Central Bank President Mario Draghi failed to reassure investors on immediate efforts to bolster the region’s economy. The S&P 500 fell 0.7 percent to 1,365.00 at the close of trading in New York.

Stocks joined a global slump as Draghi signaled the ECB intends to join forces with governments to buy bonds in sufficient quantities to ease the region’s debt crisis, while conceding that Germany’s Bundesbank has reservations about the plan. ECB officials are working on the plan and details will be fleshed out in coming weeks, he said after keeping the benchmark interest rate on hold at 0.75 percent.

A U.S. Labor Department report tomorrow may show payrolls rose by 100,000 workers in July after an 80,000 gain the prior month, according to the median forecast of economists surveyed. The jobless rate held at 8.2 percent last month, exceeding 8 percent of the 42nd consecutive month, the survey showed. That’s been the longest stretch of such elevated levels since monthly records began in 1948.

Spending Stagnates

Consumer spending stagnated in June as labor-market weakness prompted Americans to use the biggest gain in incomes in three months to build savings, a Commerce Department report showed this week.

Discounting may have helped lure shoppers last month. Gap Inc. (GPS) and Macy’s Inc. (M) posted July same-store sales that topped analysts’ estimates as promotions and warm weather boosted shopping traffic, other reports today showed.

Two of three components of the Bloomberg Consumer Confidence Index deteriorated last month. The gauge of the state of the economy fell to minus 74.2 from minus 71.9. A personal finances component also dropped, while a gauge of the buying climate was little changed.

Other measures of U.S. confidence have shown mixed results. The Conference Board’s sentiment reading unexpectedly rose in July as an improving outlook about the next six months helped overcome growing concern about the current state of the economy. The Thomson Reuters/University of Michigan’s measure dropped last month to the lowest level of 2012.

Views ‘Soured’

“The lagged effect of rising food and fuel costs, combined with a soft labor market and deteriorating growth, have soured consumers on the current expansion,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Consumers have clearly turned cautious, paring back on outlays and ramping up savings.”

Last week’s comfort reading is close to the minus 40 level that indicates “severe economic discontent,” Gary Langer, president of Langer Research Associates in New York, which compiles the index for Bloomberg, said in a statement. Eighty- seven percent of respondents rated the economy negatively -- 22 percentage points above the weekly polling average in data collected since 1985.

Seattle-based Starbucks Corp. (SBUX), the world’s largest coffee- shop chain, is among companies reporting slower consumer traffic in June and July as buyers pulled back spending amid concerns about a cooling economy.

Confidence ‘Fractured’

“This is not a Starbucks issue, this is a macro problem,” Chief Executive Officer Howard Schultz said on a July 26 earnings call. “We’ve got a fractured consumer confidence.”

Companies may also be losing confidence in the recovery. Orders placed with U.S. factories unexpectedly declined 0.5 percent in June, reflecting less demand for business equipment and the biggest decrease in bookings for non-durable goods in more than three years, the Commerce Department said today. The median forecast of economists in a Bloomberg survey called for a 0.5 percent gain.

Today’s consumer confidence figures also showed Democrats recording higher sentiment than Republicans for a record 19th consecutive week, a sign that election-year politics are influencing consumer views.

Sentiment among independents dropped to minus 46.1 from minus 45.1 last week, compared to their minus 20.5 long-term average. The reading is the lowest of the three political affiliations, indicating lagging confidence among potential swing voters.

The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 consumers 18 years old and older. The margin of error for the headline reading is 3 percentage points.

To contact the reporter on this story: Michelle Jamrisko in Washington at mjamrisko@bloomberg.net

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

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