Michigan Consumer Sentiment Declines More Than Forecast

Confidence among consumers fell more than forecast in December, reaching a four-month low as Americans grew concerned about the possibility of higher taxes next year.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index decreased to 74.5 this month from 82.7 in November. Economists projected a preliminary reading of 82 for December, according to the median of 67 estimates in a Bloomberg survey.

The group’s gauge of consumer expectations dropped to a one-year low as households fretted that lawmakers will fail to avert the so-called fiscal cliff of higher taxes and government spending cutbacks set for 2013. At the same time, job growth, rising home values, lower gas prices and stock market gains may keep spending, which accounts for about 70 percent of the economy, from faltering.

“The fiscal cliff is going to bum people out,” Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, said before the report. “The consumer had held up pretty well into the summer and early part of the fall and in particular consumer attitudes had been super strong. My fear is that’s going to fade a little.”

Estimates for the confidence measure ranged from 80 to 88 according to the Bloomberg survey. The index averaged 64.2 during the last recession and 89 in the five years leading up to the 18-month economic slump that ended in June 2009.

Stocks erased gains after the figures, with the Standard & Poor’s 500 Index falling less than 0.1 percent to 1,413.57 at 11:24 a.m. in New York.

November Employment

In a separate report today from the Labor Department, employment climbed by 146,000 in November and the jobless rate declined to an almost four-year low of 7.7 percent. The gain in payrolls exceeded the highest estimate in a Bloomberg survey in which the median projection called for an 85,000 advance.

The Michigan index of consumer expectations six months from now, which more closely projects the direction of consumer spending, decreased to a one-year low of 64.6 from 77.6 in October. Americans were more pessimistic about the outlook for their finances, the economy and the labor market, the report said.

“One in four consumers spontaneously mentioned hearing about prospects for higher taxes when asked to identify what economic news they heard,” Richard Curtin, chief economist for the consumer sentiment survey, said in a statement. “The only other survey during the past half century that recorded such heightened concerns about fiscal policy was during the disastrous debt ceiling debate in 2011.”

Current Conditions

The gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, eased to 89.9 from 90.7 the prior month.

The figures contrast with Bloomberg’s Consumer Comfort Index, which held close to a seven-month high last week as holiday discounting put Americans in the mood to spend. The index measured minus 33.8 in the period ended Dec. 2, close to the minus 33 reading in the prior week that was a seven-month high. The gauge has been above minus 40, a point associated with recessions and their aftermath, for 11 straight weeks.

Advances in confidence may be needed to further bolster purchases. During the four-day Thanksgiving weekend, spending in stores and online rose 13 percent to $59.1 billion, according to the National Retail Federation. Last year, sales climbed 16 percent during the holiday weekend.

Online holiday sales climbed 14 percent from Nov. 1 through Dec. 2 from the same period last year, according to comScore. The gain was propelled by Cyber Monday, which was the biggest online shopping day on record.

Consumers expect an inflation rate of 3.3 percent over the next 12 months, compared with 3.1 percent in the prior survey. Over the next five years, Americans expect a 2.9 percent rate of inflation, compared with 2.8 percent in the previous report.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

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

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Michigan Consumer Sentiment Index Decreased to 74.5 in December

Peter Foley/Bloomberg

The Thomson Reuters/University of Michigan preliminary index of U.S. consumer sentiment for December fell to 74.5 from 82.7 a month earlier.

The Thomson Reuters/University of Michigan preliminary index of U.S. consumer sentiment for December fell to 74.5 from 82.7 a month earlier. Photographer: Peter Foley/Bloomberg

2:41

Dec. 7 (Bloomberg) -- Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, talks about the U.S. jobs report released today by the Labor Department. Employment climbed by 146,000 following a revised 138,000 gain in October that was less than initially estimated. The unemployment rate fell to 7.7 percent, the lowest since December 2008, as size of the labor force shrank. (Source: Bloomberg)

7:57

Dec. 7 (Bloomberg) -- Mohamed El-Erian, chief executive officer and co-chief investment officer of Pacific Investment Management Co., talks about the November U.S. employment report and the economy. El-Erian also talks about the negotiations to avoid the year-end U.S. fiscal cliff of automatic budget cuts and tax increases, Pimco's investment strategy and global central bank policy. He speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)