Consumer Confidence in U.S. Falls to Lowest Level Since 2011

Jan. 29 (Bloomberg) -- Bloomberg's Michael Mckee reports that confidence among U.S. consumers declined more than forecast in January, reaching 58.6, the lowest level in more than a year as higher payroll taxes took a bigger bite out of Americans’ paychecks. He speaks on Bloomberg Television's "Market Makers."

Confidence among U.S. consumers declined more than forecast in January, reaching the lowest level in more than a year as higher payroll taxes took a bigger bite out of Americans’ paychecks.

The Conference Board’s index decreased to 58.6, the weakest since November 2011, from a revised 66.7 in December, figures from the New York-based private research group showed today. The January reading was lower than the most pessimistic forecast in a Bloomberg survey, which had a median estimate of 64.

The drop in confidence coincides with a two percentage- point increase in the payroll tax used to fund Social Security, a hurdle for consumers after a projected pickup in spending in the fourth quarter. The outlook for employment prospects and incomes also deteriorated this month, today’s data showed.

“The thing that’s particularly troubling is the sizable decline in expectations,” said Guy Lebas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, who projected a reading of 61.6. “As those expectations deteriorate, it doesn’t bode particularly well for day-to-day consumer spending.”

The 8.1-point slump in the gauge of sentiment from a month earlier was the biggest since August 2011. Estimates of the 73 economists surveyed by Bloomberg ranged from 59 to 70. The measure averaged 53.7 in the recession that ended in June 2009.

Stocks were little changed after the figures as investors watched earnings reports. The Standard & Poor’s 500 Index rose 0.1 percent to 1,501.87 at 10:21 a.m. in New York.

Home Prices

Another report today showed property values increased in November by the most since August 2006. The S&P/Case-Shiller index of home prices in 20 U.S. cities climbed 5.5 percent from November 2011, after advancing 4.2 percent in the year to October.

The Conference Board’s gauge of present conditions fell to a three-month low of 57.3 in January from 64.6. The measure of expectations for the next six months slumped to 59.5, the lowest since October 2011, from 68.1.

The share of consumers expecting more jobs to become available in the next six months dropped to 14.3 percent in January, the lowest since December 2011, from 17.9 percent the previous month.

Fewer consumers anticipate a pickup in their incomes as well. The share expecting an increase in the next six months fell to 13.6 percent, the lowest since October 2011.

Labor Market

The number of respondents who said jobs are currently plentiful declined to 8.6 percent in January from 10.8 percent. Those who said jobs are hard to get rose to 37.7 percent from 36.1 percent.

Increased pessimism about the labor market may be seeping into purchase plans. The share of Americans planning to buy a car in the next six months fell to 10.1 percent, the lowest since April 2012.

The share of households expecting interest rates to climb in the next year increased to 49.9 percent in January, the highest since August 2011.

Today’s figures mirror other measures of consumer confidence. The Bloomberg Consumer Comfort Index dropped in the week ended Jan. 20 to the lowest level since early October as Americans’ concerns about the economy mounted.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped in January to its lowest point since December 2011.

These reports also showed that a decrease in take-home pay from the increase in payroll taxes is weighing on attitudes. Americans earning $50,000 a year will take home about $80 less a month after the tax used to pay for Social Security benefits went up to 6.2 percent from 4.2 percent.

Budget Debate

While lawmakers avoided broad-based increases in income taxes, Congress is now debating how best to reduce the nation’s budget deficit. Automatic spending cuts are slated to go into effect March 1.

Walgreen Co. (WAG), the largest U.S. drugstore chain, sees customers who have grown more value conscious.

“Many of our customers are concerned about long-term employment,” Kermit Crawford, president of the company’s pharmacy, health and wellness business, said at a health-care conference on Jan. 7. “They’re concerned about issues such as Medicare and Social Security. They’re concerned about the debt issues. It’s changing the way they think about value. It’s changing the way they shop.”

Employment gains are helping sustain demand. Employers added 155,000 workers in December, according to Labor Department data. For all of 2012, the economy created 1.84 million jobs, matching the gain in 2011. It’s the best back-to-back reading since 2005-2006.

Consumers are also paying less at the gas pump. The average price of a gallon of gas yesterday was $3.36, down from a recent high of $3.87 in September, according to data from AAA, the biggest U.S. motoring organization.

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net

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

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