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Confidence Decline Points to Cooling U.S. Growth: Economy

Consumer Confidence in U.S. Unexpectedly Declined in January
Job seekers including Michael Collins, out of work since 2008, center, at a career fair sponsored by National Career Fairs in Chicago on Jan. 25, 2012. Photographer: Daniel Acker/Bloomberg

Consumer confidence unexpectedly dropped in January and a gauge of business activity fell, underscoring forecasts that the U.S. economy will cool after expanding at the fastest pace since the second quarter 2010.

The New York-based Conference Board’s confidence index decreased to 61.1, lower than the most pessimistic forecast in a Bloomberg News survey of economists, from a revised 64.8 reading the prior month. The Institute for Supply Management-Chicago Inc. said its business barometer declined to 60.2 from 62.2 in December. Readings above 50 signal growth.

Employers aren’t hiring fast enough to drive bigger gains in wages and consumer spending, while higher gasoline prices are cutting into household budgets. Another report today showed home prices fell more than forecast in November, eroding the wealth of families as they seek to rebuild savings.

“This quarter will be a bit slower,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who had the lowest sentiment estimate. “Consumer confidence appears to have leveled off, as job growth isn’t quite as good and gasoline prices have moved back up.”

Stocks fell for a fourth day and Treasuries gained. The Standard & Poor’s 500 Index declined less than 0.1 percent to 1,312.41 at the close in New York. The yield on the 10-year Treasury note fell to 1.8 percent from 1.85 percent late yesterday.

German Unemployment

In Europe today, German unemployment dropped more than economists forecast to a two-decade low in January, bolstering growth in the continent’s largest economy.

The number of people out of work fell a seasonally adjusted 34,000 to 2.85 million, the Nuremberg-based Federal Labor Agency said today. Economists predicted a decline of 10,000, the median of 32 forecasts in a Bloomberg survey showed. In December, Italy’s jobless rate rose to the highest since 2004, while in the euro area it stayed at a 14-year high of 10.4 percent.

The S&P/Case-Shiller index of property values in 20 U.S. cities declined 3.7 percent from November 2010 after decreasing 3.4 percent in the year ended in October, the group said today in New York. Economists projected a 3.3 percent drop, according to the median estimate in a Bloomberg survey.

The consumer confidence figure was projected to rise to 68, according the median forecast of 74 economists surveyed. The measure averaged 53.7 during the recession that ended in June 2009.

Jobs Hard to Get

The share of consumers who said jobs are currently plentiful fell to 6.1 percent from 6.6 percent. Those who said jobs are hard to get increased to 43.5 percent, the highest in three months, from 41.6 percent.

The proportion expecting incomes to rise over the next six months dropped to 13.8 percent from 16.3 percent. Still, the percent of respondents expecting more jobs to become available in the next six months increased to 16.2 from 14 the previous month.

Employers added 145,000 jobs in January after payrolls rose by 200,000 in December, according to the median estimate in the Bloomberg survey before the Feb. 3 data from the Labor Department.

“Unemployment has remained stubbornly high,” Sandra Cochran, chief executive officer of Cracker Barrel Old Country Store Inc., said at a Jan. 11 conference. “Consumer sentiment remains weak, and this has focused the industry on price and prompted many of our competitors to remain very focused on discounting.”

Rebuilding Savings

Consumers are limiting their purchases as they rebuild savings. The economy expanded 2.8 percent in the final three months of 2011, compared with economists’ 3 percent median forecast, according to Commerce Department data released on Jan. 27. Household purchases rose 2 percent.

Gross domestic product will expand at a 2 percent annual rate this quarter, according to the median forecast in a Bloomberg survey of economists taken from Jan. 6 to Jan. 11.

The Federal Open Market Committee last week said its benchmark interest rate will remain low at least through the end of 2014.

“The Committee expects economic growth over coming quarters to be modest and consequently anticipates that the unemployment rate will decline only gradually,” it said in a statement.

Today’s report is at odds with other figures. The Bloomberg Consumer Comfort Index steadied at minus 46.4 in the week ended Jan. 22 after minus 47.4 the prior week. The Thomson Reuters/University of Michigan final index of consumer sentiment jumped in January to the highest level in almost a year.

Slowing Orders

The decline in the Institute for Supply Management-Chicago’s business barometer was led by slowing orders and employment. Three consecutive readings exceeding 60 are still the strongest since early 2011, signaling manufacturing remains a mainstay of the expansion.

The Chicago group’s employment measure fell to 54.7, the lowest level since August, from 59.2 the prior month. The production gauge decreased to 63.8 from 64.9, and the index of new orders declined to 63.6 from 67.1.

The measure of prices paid dropped to 62.4 from 63.8 and a gauge of inventories decreased to 51.6 from 52.

Manufacturing payrolls increased by 13,000 in January following a 23,000 gain the prior month, economists surveyed by Bloomberg forecast the Labor Department will say Feb. 3 in its monthly payroll report.

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