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Consumer Confidence in U.S. Unexpectedly Increased in July

Joblessness  hovering around 9 percent, rising inflation and falling share prices may keep household sentiment in check, raising the risk that the biggest part of the economy will stagnate. Photographer: David Maung/Bloomberg
Joblessness hovering around 9 percent, rising inflation and falling share prices may keep household sentiment in check, raising the risk that the biggest part of the economy will stagnate. Photographer: David Maung/Bloomberg

Confidence among U.S. consumers unexpectedly rose in July from an eight-month low, led by a rebound in the outlook for jobs over the next six months.

The Conference Board’s index climbed to 59.5 from a revised 57.6 reading in June that was lower than previously estimated, figures from the New York-based private research group showed today. Economists predicted the July gauge would fall to 56, according to the median forecast in a Bloomberg News survey.

Easing fuel prices may make households more comfortable opening their wallets in the second half of the year. At the same time, Federal Reserve Chairman Ben S. Bernanke told Congress earlier this month that unemployment above 9 percent and falling home values are a concern for Americans, which may restrain any recovery in consumer spending.

“People are feeling a little bit better now that falling gasoline prices have taken some of the burden off of their pocket book,” said Russell Price, a senior economist at Ameriprise Financial Services Inc. in Detroit. “Despite the dire employment situation, people are feeling better about their own employment situation.”

Estimates for the Conference Board’s gauge ranged from 50 to 60 in the Bloomberg News survey of 73 economists. The index averaged 98 during the last economic expansion that ended in December 2007.

Housing Slump

Home prices in 20 U.S. cities dropped in the year ended May by the most in 18 months, adding to evidence the housing market is struggling, another report today showed. The S&P/Case-Shiller index of property values fell 4.5 percent from May 2010. The decline matched the median forecast of 32 economists surveyed by Bloomberg News.

Sales of new homes unexpectedly declined for a second month in June, indicating housing is still languishing two years into the economic recovery, a report from the Commerce Department also showed today. Purchases dropped 1 percent to a 312,000 annual pace, a three-month low.

Stocks dropped as wrangling between lawmakers over plans to raise the federal debt limit offset better-than-forecast earnings from Ford Motor Co. The Standard & Poor’s 500 Index decreased 0.4 percent to 1,331.52 at 10:33 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 2.97 percent from 3 percent late yesterday.

Confidence Breakdown

The Conference Board’s confidence report showed a measure of present conditions fell to 35.7, the weakest since February, from 36.6 in June. The measure of expectations for the next six months increased to 75.4, almost entirely retracing the previous month’s drop.

Today’s report is at odds with the Thomson Reuters/University of Michigan preliminary index of consumer sentiment which plunged to a two-year low in July. The Conference Board’s measure is more in line with the Bloomberg Consumer Comfort Index which has been hovering at levels previously consistent with recessions.

The percent of respondents in the Conference Board survey expecting more jobs to become available in the next six months climbed to 16.7 from 13.8 the previous month. The proportion expecting their incomes to rise over the next six months advanced to 15.7 from 14.1 in June. The percent expecting a drop in incomes also rose to the highest level in a year.

Jobs Outlook

The share of consumers who said jobs are currently hard to get increased to 44.1 percent from 43.2 percent in June, signaling little improvement for the July employment data. The gain in confidence wasn’t broad-based as four of nine U.S. regions showed an improvement in sentiment, according to today’s report.

More respondents in the Conference Board’s survey indicated they were planning to buy a house, while fewer intended to purchase cars or major appliances in the next six months.

A struggling labor market may be weighing on Americans’ outlooks, keeping consumers out of stores. Employers added 18,000 jobs in June, the smallest gain in nine months, as the unemployment rate rose to 9.2 percent, according to Labor Department figures.

Bernanke said this month that “disappointing” job growth in May and June were due to temporary effects, including higher energy costs and parts shortages from Japan. He said central bankers would take additional steps, including buying government bonds, if economic growth stagnates. Still, he said the Fed isn’t ready to start a third round of asset purchases.

‘Temporary Shocks’

“Once the temporary shocks that have been holding down economic activity pass, we expect to again see the effects of policy accommodation reflected in stronger economic activity and job creation,” Bernanke told the House Financial Services Committee on July 13.

Lagging consumer confidence, high commodity prices and weak employment gains are combining to make the sales climate more difficult than expected, said Steven Burd, chief executive officer of grocer Safeway Inc.

“Everybody has to appreciate that these are pretty unusual times,” Burd said on a conference call with analysts on July 21. “I don’t think anybody expected fuel costs to be up 32% on the year, unemployment to be at 9.2 and consumer confidence to be hovering around 60.”

Pleasanton, California-based Safeway retreated from an earlier 1 percent to 1.5 percent projection for growth in same store sales excluding fuel. Instead, the company expects an uptick closer to 1 percent, officials said on the call.

The stalemate in Washington over raising the nation’s $14.3 trillion debt ceiling could also be clouding consumers’ moods. Party leaders are readying dueling proposals to cut the government’s budget deficit and raise the debt-ceiling by Aug. 2, the date the Treasury Department says the U.S. will lose its borrowing authority.

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