Confidence Falls on Concern Over U.S. Job Outlook: Economy

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Photographer: Craig Warga/Bloomberg

A pedestrian walks past mannequins in the window of a store in the Soho shopping district in New York.

Growing concern over the outlook for hiring and wages shook U.S. consumer sentiment this month, raising the risk spending will contribute less to growth.

The Conference Board’s consumer confidence index declined to 79.7, the weakest since May, from 81.8 a month earlier, the New York-based private research group said today. Another report today showed home prices appreciated in the 12 months through July by the most in more than seven years.

Uneven employment growth and limited pay increases may hold back consumer purchases, which make up about 70 percent of the world’s largest economy. While some households are benefiting from rising home and stock values, building tensions in the Middle East and budget infighting in Washington may prevent sentiment from rebounding over the next month.

“The employment situation does seem to be improving, but at a frustratingly slow pace,” said Stephen Stanley, chief economist with Pierpont Securities LLC in Stamford, Connecticut, the second-best confidence forecaster over the past two years, according to data compiled by Bloomberg. “It’s not a terrible situation, but actual spending has been tepid this year.”

Stocks dropped for a fourth day amid concerns over budget talks as investors weighed prospects for easing tensions in the Middle East. The S&P 500 fell 0.3 percent to 1,697.42 at the close in New York.

Sentiment is improving overseas. German business confidence rose in September for a fifth month to reach the highest level in more than a year, the Ifo institute reported today. The reading of 107.7 was lower than the median forecast of economists surveyed by Bloomberg.

Survey Results

The median forecast in a Bloomberg survey projected U.S. consumer confidence would decrease this month to 79.9. Estimates among the 78 economists ranged from 76 to 83. The measure averaged 53.7 in the recession that ended in June 2009.

The barometer of consumer expectations for the next six months fell to 84.1 after 89 a month earlier. A gauge of present conditions improved to 73.2 in September from 70.9 a month earlier.

The fewest respondents since March projected their incomes will rise. The share dropped to 15.4 percent in September from 17.5 percent a month earlier. The proportion of Americans who said jobs would become more plentiful in the next six months fell to 16.9 percent from 17.5 percent.

At the same time, the gap between those who said work opportunities are currently scarce, and those who said they’re easy to get, shrank to the lowest since September 2008.

Home Values

A report from S&P/Case-Shiller showed property values in 20 cities increased 12.4 percent in July from the same month in 2012, the biggest advance since February 2006. The gain matched the median projection of economists surveyed and followed a 12.1 percent increase a month earlier.

The cutoff date for the Conference Board’s confidence survey was Sept. 13, around the time the Obama administration was considering a military strike on Syria.

“The consumer is in a cautious, wait-and-see mode, with geopolitical uncertainties in the news lately, as well as the looming budget battle,” Stanley said.

Improvements in the labor market have been mixed. Employers created 169,000 jobs in August, and the prior two months’ gains were revised down, Labor Department figures showed this month. The unemployment rate dropped to 7.3 percent, a more than four-year low, in part because workers left the labor force.

The lack of more progress in the job market was behind the decision of Federal Reserve policy makers to refrain from reducing the monthly pace of stimulus. Central bankers said they need to see more evidence of sustained economic strength.

Bernanke’s View

“Conditions in the job market today are still far from what all of us would like to see,” Chairman Ben S. Bernanke said following the Federal Open Market Committee’s two-day session on Sept. 18. “The committee has concern that rapid tightening of financial conditions in recent months would have the effect of slowing growth.”

Speculation the Fed would begin paring the $85 billion monthly pace of bond purchases has pushed up mortgage rates, threatening to slow the recovery in housing.

More Americans indicated in today’s confidence survey that they plan to buy homes and automobiles in the next six months.

The auto industry has been thriving as Americans replace older models and take advantage of dealer incentives, including interest-free financing. Ford Motor Co., General Motors Co. and Toyota Motor Corp. posted U.S. sales gains in August that beat analyst estimates. The annualized pace of motor vehicle sales climbed to 16 million in August, the highest in almost six years, according to data from Ward’s Automotive Group.

Cutting Back

While some consumers are spending on big-ticket goods such as new cars and appliances, they may be cutting back elsewhere. Retailers from Macy’s Inc. to Wal-Mart Stores Inc. cut forecasts after missing their second-quarter sales targets.

Clarence Otis, chairman and chief executive officer at Darden Restaurants Inc. (DRI), owner of the Red Lobster and Olive Garden chains, referred to “guests who need more affordability,” on a Sept. 20 earnings call. “They’ve got to do some more disciplined budgeting, and dining out is one of the things that may be paying a price for that,” Otis said.

Chief executive officers reported a dimmer economic outlook in the third quarter, according to a Business Roundtable survey last week. Fewer company leaders expected a pickup in sales and capital spending in the next six months. Half of the respondents indicated that uncertainty over the budget debate in Washington may keep their companies from hiring.

Holiday Spending

Deloitte LLP, a New York-based consulting firm, said retail sales may climb as much as 4.5 percent this holiday shopping season, about the same as last year.

“Rising home prices with steady job creation may buoy consumers,” Daniel Bachman, Deloitte’s senior U.S. economist, said in a statement.

At the same time, it may be difficult for lower-income households to boost spending after a 2 percentage-point increase in the payroll tax at the start of the year. The poverty rate hovered close to a two-decade high, while median household income showed little change, according to a Sept. 18 report from the Commerce Department.

To contact the reporter on this story: Ben Schenkel in Washington at bschenkel@bloomberg.net

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

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