Michigan Consumer Sentiment Fell to Five-Month Low in December

U.S. consumer confidence fell in December to a five-month low as Americans grew more concerned about the possibility of higher taxes next year.

The Thomson Reuters/University of Michigan consumer sentiment index decreased to 72.9, the weakest since July, from 82.7 in November. Economists projected a final reading of 75 for December, according to the median of 66 estimates in a Bloomberg survey. Today’s figure was lower than a preliminary report earlier this month.

American households are growing uneasy as the federal government moves toward more than $600 billion of higher taxes and spending cuts starting early in 2013. At the same time, as the world’s largest economy enters the new year, job growth, rising home values, lower gas prices and stock market gains might help boost consumer spending, which accounts for about 70 percent of the economy.

“Sentiment was doing well but reversed because of the fiscal cliff news saturating the headlines,” Jay Feldman, an economist at Credit Suisse Holdings USA in New York, said before the report. “It’s probably temporary. If you resolve the fiscal cliff I’d be surprised if sentiment didn’t bounce back.”

Confidence Measure

Estimates for the confidence measure ranged from 72 to 78 according to the Bloomberg survey. The preliminary reading, released on Dec. 7, was 74.5.

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.

In a separate report today, the Commerce Department said spending by U.S. consumers climbed in November. Purchases increased 0.4 percent last month after a 0.1 percent drop in October that was smaller than previously estimated, the department said.

The Michigan index of expectations six months from now, which more closely projects the direction of consumer spending, decreased to 63.8 in December from 77.6 the prior month.

A gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy big-ticket items such as cars, was at 87.0, down from 90.7 in November.

The figures contrast with Bloomberg’s Consumer Comfort Index, which climbed to an eight-month high last week. The comfort index rose to minus 31.9 in the period ended Dec. 16 from minus 34.5 the week before.

Economic Anxiety

Economic anxiety has caused some Americans to trim spending. Miami-based Carnival Corp. (CCL), the world’s biggest cruise line operator, this week provided a full-year earnings forecast that fell short of what analysts anticipated. U.S. bookings have been down as North American customers were distracted by the presidential election this fall and the threatened fiscal cliff of tax increases and spending cuts, Chief Operating Officer Howard Frank said.

“We are hopeful that once the fiscal cliff issue is resolved and we get into January” that “consumers will start to turn their attention, getting on with their lives, and booking their cruise vacations,” Frank said on a Dec. 20 earnings call.

Cars are one bright spot in the economy, with vehicle sales on pace to reach 15.46 million a year as of November. Confidence, however, still has room to improve, said Thomas Folliard, president and chief executive officer at auto retailer CarMax Inc. (KMX) based in Richmond, Virginia.

“Consumer sentiment has come back some, and the customers that are coming to the store now seem a little bit more engaged maybe than they had been before,” Folliard said on a Dec. 20 earnings call. “But it’s really hard to tell if behavior is shifting back to what we saw pre-recession. I’d say not yet.”

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

Enlarge image

Michigan Consumer Sentiment Fell to Five-Month Low in December

Tim Boyle/Bloomberg

A customer picks out items on a shopping list at a Costco Wholesale Corp. store in Mount Prospect, Illinois.

A customer picks out items on a shopping list at a Costco Wholesale Corp. store in Mount Prospect, Illinois. Photographer: Tim Boyle/Bloomberg

2:48

Dec. 21 (Bloomberg) -- Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ, talks about the outlook for an agreement by lawmakers to avoid the so-called U.S. fiscal cliff of automatic spending cuts and tax increases. Rupkey also talks about Federal Reserve policy and U.S. consumer spending. (Source: Bloomberg)