U.S. Consumer Comfort Falls as Confidence in Economy Slumps

U.S. Consumer Comfort Falls as Confidence in Economy Slumps
Unemployment above 9 percent, limited wage growth and a volatile stock market are deflating consumers’ moods, posing a threat to the household spending that accounts for 70 percent of the world’s largest economy. Photographer: Scott Eells/Bloomberg

Consumer confidence declined last week as sentiment about the U.S. economy slumped to the second-lowest level in two years.

The Bloomberg Consumer Comfort Index was minus 49.1 in the week to Aug. 27 compared with a minus 47 reading the previous period. The gauge dropped to a record low among the lowest-income Americans.

Unemployment above 9 percent, limited wage growth and a volatile stock market are deflating consumers’ moods, posing a threat to the household spending that accounts for 70 percent of the world’s largest economy. The report showed confidence among homeowners was close to an all-time low as property values remain depressed.

“Since peaking in February earlier this year, consumer sentiment has steadily declined, mostly due to the lagged impact of rising gasoline and food prices, as well as flat wages,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The decline in consumer sentiment will likely curb the appetite of consumers to continue spending at levels observed in July.”

Another report today showed first-time applications for jobless benefits decreased by 12,000 to 409,000 in the week ended Aug. 27 as the influence of the strike at Verizon Communications Inc. waned, Labor Department figures showed.

Treasuries rose and stocks fell after the report. The Standard & Poor’s 500 Index dropped 0.1 percent to 1,217.65 at 9:34 a.m. in New York. The yield on the benchmark 10-year note fell to 2.20 percent from 2.22 percent late yesterday.

Other Measures

Other measures of sentiment have also shown Americans are downbeat. The Thomson Reuters/University of Michigan final index of consumer sentiment plummeted in August to the lowest level since November 2008. The Conference Board’s index of confidence last month plunged to the lowest level in more than two years.

The Bloomberg comfort index has been stuck below minus 40, the level associated with recessions or their aftermath, since the end of February. Last week’s figure is close to the minus 54 reading in January 2009, which matched the worst in the history of the series dating back to 1985.

“The poor, in particular, are suffering,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement. “But others likewise are suffering, if not as severely.”

For those making less than $15,000 a year, the comfort index dropped to minus 90.6, the worst reading for any group since record-keeping began in 1990. Confidence of Americans aged 65 and over dropped to the second-lowest in 18 years.

Average This Year

The overall gauge, which began December 1985, has averaged minus 45.2 this year, compared with minus 45.7 for all of 2010 and minus 47.9 in 2009, the year the last recession ended, the report showed.

The comfort survey showed declines in all three of the subcomponents. The index of Americans’ views of the economy fell to minus 87.3 last week from minus 84.3. Ninety-four percent of those surveyed had a negative view of the economy, matching the high this year.

The gauge of personal finances dropped to minus 6.1 after a minus 4.5 reading in the prior period. A measure of the buying climate decreased to minus 54 from minus 52.4. Some 77 percent said it was a bad time to buy.

Democrats are feeling more pessimistic as their confidence gauge fell to minus 57.8, the lowest reading since September 2009. Sentiment among Republicans fell to minus 46.7, widening the gap between the two parties to 11.1 points, compared with 10.6 points the previous week. Political independents’ confidence dropped to minus 44.1, from minus 42.8.

‘Tough Audience’

“As the president attempts to shift the nation’s focus to his job creation efforts in the coming weeks, he’ll face a tough audience,” Langer said.

President Barack Obama yesterday requested Congress hold a joint session on Sept. 7 so he can unveil his jobs proposals. Obama’s plans include more infrastructure spending, tax incentives to spur hiring, a reduction in the employer portion of the payroll tax credit and changes to unemployment insurance to subsidize worker retraining.

“If you were advised to lean on one side or the other, I’d say it’s more likely to be slightly more negative from a sentiment perspective in consumers in the United States,” Glenn Murphy, chief executive officer of Gap Inc., said in an Aug. 18 conference call with analysts. “Maybe the holiday season could be slightly positive, but we’re not counting on it right now.”

A jobless rate at 9.1 percent is one reason Americans are pessimistic.

Fed’s Bernanke

“Economic growth has, for the most part, been at rates insufficient to achieve sustained reductions in unemployment,” Federal Reserve Chairman Ben S. Bernanke said Aug. 26 at the Jackson Hole, Wyoming, central bank symposium.

The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 consumers aged 18 and over. Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate; the percentage of negative responses is subtracted from the share of positive views and divided by three. The most recent reading is based on the average of responses over the previous four weeks.

The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative. The margin of error for the headline reading is 3 percentage points.

Field work for the index is done by SSRS/Social Science Research Solutions in Media, Pennsylvania.

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