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U.S. Michigan Consumer Sentiment Decreases Less Than Forecast

Oct. 1 (Bloomberg) -- Confidence among U.S. consumers declined less than forecast, evidence the largest part of the economy may be stabilizing.

The Thomson Reuters/University of Michigan final index of consumer sentiment fell to 68.2 from 68.9 in August. The gauge was projected to decline to 67, according to the median forecast in a Bloomberg News survey of economists, and compares with a preliminary reading of 66.6 issued last month.

The confidence gauge, together with a report earlier today showing that purchases rose more than forecast in August, reduces the odds that a slump in household demand will derail the recovery. Even so, unemployment near a 26-year high is making shoppers cautious, forcing companies such as Best Buy Co. to discount merchandise.

“It’s employment that’s really driving the focus for the consumer,” David Sloan, senior economist at 4Cast Inc. in New York, said before the report. “Some improvement in employment will lead to some improvement in spending but not great strength.”

Consumer purchases rose 0.4 percent for a second month, Commerce Department figures showed today in Washington. The gain exceeded the 0.3 percent increase projected by the median forecast of economists surveyed by Bloomberg News. Incomes were up 0.5 percent, the biggest advance this year, propelled by the resumption of extended and emergency unemployment benefits as wage gains cooled.

The confidence index averaged 89 in the five years leading up to the recession that began in December 2007. It has yet to reach that level since the recovery began in June 2009.

The confidence survey’s measure 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 79.6 from 78.3 in August.

Expectations Decline

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, decreased to 60.9, the lowest since March 2009, from 62.9.

The world’s largest economy expanded at a 1.7 percent annual rate in the second quarter, the Commerce Department said yesterday, after growing 3.7 percent the first months of the year and 5 percent at the end of 2009.

Economists surveyed by Bloomberg News last month lowered their forecasts for growth in the second half of the year to an average 2.1 percent and said there was a 20 percent chance the economy will slide into another recession.

“We know it is a tough environment out there,” Best Buy Chief Executive Officer Brian Dunn told reporters Sept. 28. “It will be hard fought.”

Phone Promotions

Richfield, Minnesota-based Best Buy, the world’s largest consumer-electronics retailer, announced Sept. 28 it plans to offer a promotion on every Friday in October to spur sales of phones. Best Buy said it plans to keep holiday hiring even with last year, adding about 29,000 seasonal employees.

Consumers in today’s survey said they expect an inflation rate of 2.2 percent over the next 12 months, the lowest in a year and down from 2.7 percent in August.

Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expect a 2.7 percent rate of inflation, compared with 2.8 percent the prior month.

To contact the reporter on this story: Courtney Schlisserman in Washington

To contact the editor responsible for this story: Christopher Wellisz in Washington

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