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Consumer Sentiment Index in U.S. Increased in August

Improving confidence makes it less likely that a slump in consumer spending will derail the economy. Photographer: Chris Keane/Bloomberg
Improving confidence makes it less likely that a slump in consumer spending will derail the economy. Photographer: Chris Keane/Bloomberg

Aug. 13 (Bloomberg) -- Confidence among U.S. consumers rose in August, a sign the biggest part of the economy may soon stabilize.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 69.6 following a reading of 67.8 in July that was the lowest since November, the group said today. The gauge was forecast to rise to 69, according to the median of 65 economists in a Bloomberg News survey.

Improving confidence makes it less likely that a slump in consumer spending, which accounts for about 70 percent of the economy, will derail the economy. At the same time, the lack of jobs will limit household purchases to a pace consistent with slowing growth the rest of this year.

“Some of the fears about the economic outlook that were heightened in July have diminished,” said Jonathan Basile, an economist at Credit Suisse in New York.

Stocks were little changed, erasing earlier losses, after the report helped ease concern consumers will retreat. The Standard & Poor’s 500 Index was at 1,083.79 at 10:23 a.m. in New York compared with 1,083.61 at yesterday close. Treasury securities climbed, sending the yield on the 10-year note down to 2.70 percent from 2.75 percent late yesterday.

Survey Results

Estimates for the confidence measure ranged from 64 to 74, according to the Bloomberg survey. The index averaged 89 in the five years leading up to the recession that began December 2007.

Other reports today showed retail purchases increased less than forecast in July and consumer prices rose.

Sales at retailers rose 0.4 percent, the first gain in three months and led by autos and gasoline, according to figures from the Commerce Department. Economists in a Bloomberg survey projected a 0.5 percent gain, according to the median estimate. Excluding auto dealers and gasoline stations, purchases fell 0.1 percent.

The cost of living climbed in July for the first time in four months, pointing to a stabilization that may ease concern a slowdown in growth will spur deflation. The consumer-price index increased 0.3 percent, the most in a year and exceeding the 0.2 percent gain projected by the median forecast of economists surveyed by Bloomberg News, Labor Department figures showed.

Data Breakdown

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, rose to 78.3 from 76.5 in the prior month.

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, increased to 64.1 from 62.3.

Shoppers are cautious about spending. Teen retailer Aeropostale Inc. reported July sales at stores open at least a year rose 1 percent, less than the 7.4 percent gain that analysts predicted, and said it was due to a “challenging retail environment.”

OfficeMax Inc., the third-largest U.S. office-supply chain, forecast sales will decline this quarter from a year earlier.

It’s be an “extremely tough” back-to-school season, Chief Financial Officer Bruce Besanko said in a telephone interview on Aug. 3. “Customers will be budget-conscious and retailers will be competitive and promotional, much like they were last year.”

Consumers in the confidence survey said they expect an inflation rate of 2.8 percent over the next 12 months, compared with 2.7 percent in July.

Less Inflation

Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 2.7 percent rate of inflation, down from 2.9 percent the prior month.

The preliminary Thomson Reuters/University of Michigan consumer confidence report reflects about 300 responses, compared with 500 households for the final survey.

Economists trimmed projections for growth and consumer spending in the last six months of 2010, according to a Bloomberg survey taken July 31 to Aug. 9. They forecast the jobless rate, which reached a 26-year high of 10.1 percent in October 2009, will average 9.6 percent this year.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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