Consumer Sentiment in U.S. Fell to 10-Month Low in October

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Photographer: Patrick T. Fallon/Bloomberg

A customer browses through previously owned toys for sale during the LA Kids Consignment Sale in Burbank, California.

Consumer confidence in the U.S. dropped in October to a 10-month low, showing the reopening of the federal government failed to reassure households.

The Thomson Reuters/University of Michigan final consumer sentiment index decreased to 73.2, the weakest this year, from 77.5 in September. The median estimate in a Bloomberg survey called for a decline to 75 compared with a preliminary reading of 75.2.

The government’s partial closing prompted Americans to turn more pessimistic about the economy, whose recovery continues to be uneven. Disappointing gains in employment and the prospect of a protracted budget battle into 2014 raises the risk that consumer spending will cool as the holiday-shopping season approaches.

“This political uncertainty is going to slow any momentum we’ve had in the past few months,” said Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York, who projected the sentiment index would drop to 73. “If we come into December without any progress on a funding bill, consumers will start sitting on their hands and that will mean a slower rebound in spending.”

Estimates of the 52 economists surveyed ranged from 71 to 78. The index averaged 89 in the five years prior to the recession that began in December 2007, and 64.2 during the 18-month slump that ended in June 2009.

Shares Rise

Stocks were little changed as better-than-projected revenue from Amazon.com Inc. and Microsoft Corp. offset the drop in sentiment. The S&P 500 rose less than 0.1 percent to 1,753.47 at 10:35 a.m. in New York.

The Michigan sentiment survey’s current conditions gauge, which measures Americans’ view of their personal finances, decreased to 89.9 from 92.6 last month.

The barometer of expectations six months from now dropped to 62.5 this month, the weakest in almost two years, from 67.8 in September.

The Michigan sentiment index decreased along with the Bloomberg Consumer Comfort Index, which has tumbled each of the last four weeks. The Bloomberg gauge fell in the period ended Oct. 20 to minus 36.1, the lowest since February, from minus 34.1.

Stronger gains in hiring would help boost spending. The unemployment rate dropped 0.1 percentage point to 7.2 percent, the lowest since November 2008, Labor Department figures showed this week. Employers added 148,000 workers to payrolls in September, fewer than projected in a Bloomberg survey of economists.

Home Values

At the same time, rising home values are helping mend balance sheets for some Americans. House prices increased 8.5 percent in the year ended August, the Federal Housing Finance Agency said earlier this week.

Some companies are seeing the results of customers having to curb spending on discretionary items like dining out when faced with having to replace an aging automobile or other big-ticket item.

“Consumer sentiment is guarded at best,” said Wyman T. Roberts, chief executive officer and president of Brinker International Inc. (EAT), the Dallas-based owner of restaurant franchises such as Chili’s and Olive Garden, in an Oct. 23 earnings call. “While employment rates are showing signs of improvement, casual dining in particular is being impacted by struggles many young adults are facing.”

Retailers will probably have subdued sales in the coming weeks, according to Mark Vitner, a senior economist in Charlotte, North Carolina, for Wells Fargo Securities LLC, the top forecasting firm of retail sales for the past two years, according to data compiled by Bloomberg.

“I think holiday retail sales are going to have a hard time rising much more than 3 to 4 percent,” Vitner said. “The economy had less momentum going into the government shutdown than we thought.”

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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