Consumer Confidence in U.S. Declines by Most Since October

Confidence among U.S. consumers fell in August by the most in 10 months as households grew more pessimistic about their employment prospects and the economic outlook.

The Conference Board’s index decreased to 60.6 from a revised 65.4 in July, figures from the New York-based private research group showed today. The 4.8-point decrease was the biggest since October. The reading was less than the most- pessimistic forecast in a Bloomberg survey in which the median projection was 66.

Rising gasoline prices, a jobless rate that’s been above 8 percent since the start of 2009 and limited income gains are keeping consumers glum. Persistent pessimism raises the risk of a pullback in household purchases that account for about 70 percent of the world’s biggest economy.

“The consumer is still very cautious,” said Jim O’Sullivan, chief U.S. economist for High Frequency Economics Ltd. in Valhalla, New York, who projected a drop in sentiment. “The labor market is still relatively weak. There’s a lot of uncertainty about policy ahead of the election” and fuel costs have accelerated, he said.

This month’s confidence reading was the lowest since November. Estimates for the Conference Board gauge ranged from 61 to 68 in the Bloomberg survey of 77 economists. The measure averaged 53.7 during the 18-month recession that ended in June 2009.

Stocks were little changed ahead of Federal Reserve Chairman Ben S. Bernanke’s speech on the economy in three days. The Standard & Poor’s 500 Index dropped less than 0.1 percent to 1,409.9 at 1:55 p.m. in New York.

Home Prices

Another report today showed home prices in 20 U.S. cities rose in the 12 months ended in June, the first year-over-year gain in almost two years and showing improvement in the industry that precipitated the last recession. The S&P/Case-Shiller index of property values climbed 0.5 percent from a year earlier, the group reported in New York.

“We are very encouraged by our results,” Robert Toll, chairman of Toll Brothers Inc. (TOL), said during an Aug. 22 call after the Horsham, Pennsylvania-based luxury-home builder’s third-quarter earnings were better than expected. “We do remain cautious in our optimism, as we believe consumer confidence remains fragile and subject to the impact of negative economic and political headlines.”

The Conference Board’s measure of present conditions was little changed at 45.8 in August after 45.9 a month earlier. The measure of expectations for the next six months slumped to 70.5, the lowest since November, from 78.4.

Inflation Expectations

Sentiment waned among almost all income and age groups, today’s figures showed. The pickup in gasoline prices may have boosted inflation expectations as well. Spending plans were mixed, with fewer Americans saying they expected to purchase autos and more indicating they planned to buy a home.

The percent of respondents who said they expected more jobs to become available in the next six months fell to 15.4 from 17.6 the previous month. The share who said they anticipated fewer employment opportunities rose to 23.4 percent, the highest since November.

The proportion who said they expected their incomes to decrease over the next six months rose to a 10-month high of 16.8 percent from 14.9 percent in July. Some 52.3 percent of consumers said jobs are currently not plentiful.

The percent of American consumers who expected better business conditions in the next six months declined to 16.5 percent in August from 19 percent. Some 17.7 percent say conditions will be worse, the most since October.

Bloomberg Measure

The Conference Board’s measure is in line with the Bloomberg Consumer Comfort Index, which dropped in the week ended Aug. 19 to the lowest level since January. The Thomson Reuters/University of Michigan preliminary August index of consumer sentiment improved after dropping a month earlier to the weakest level of the year.

A decrease in optimism may make it difficult for spending to strengthen. Purchases by consumers rose at a 1.5 percent annual rate in the second quarter, down from a 2.4 percent rate in the previous three months, according to Commerce Department data. An Aug. 30 report may probably show spending climbed in July by the most in five months, economists project.

A pickup in job growth probably helped sustain demand last month. Payrolls increased by 163,000 in July, the most in five months, according to Labor Department figures released Aug. 3. At the same time, the jobless rate rose to a five-month high of 8.3 percent in July.

Stock prices have also risen, easing the sting of higher fuel costs. The S&P 500 has advanced 2.3 percent in August through yesterday and is on pace for its third straight monthly gain.

The average price of a gallon of regular gasoline has climbed 23.5 cents this month to $3.76, according to AAA, the nation’s largest auto club. Since reaching a low of $3.33 on July 1, the average has climbed 43 cents.

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

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

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