Consumer Comfort in U.S. Drops to Nearly a Four-Month Low

Consumer Comfort in U.S. Declines
Shoppers ride the escalator in a Hennes & Mauritz AB (H&M) store at the City Creek Center in Salt Lake City, Utah. Photographer: George Frey/Bloomberg

Consumer confidence dropped last week to the lowest level since the end of January as slower U.S. job growth contributed to pessimism about personal finances and spending.

The Bloomberg Consumer Comfort Index fell in the week ended May 13 to minus 43.6, a level associated with recessions or their aftermaths, from minus 40.4 in the previous period. The monthly expectations measure was little changed as Americans see scant improvement in the world’s largest economy.

The fourth straight decline in weekly confidence comes even as gasoline prices have retreated from an 11-month high reached in early April. The figures underscore the need for stronger job and wage gains that would help propel household spending, which accounts for about 70 percent of the economy.

“The lagged impact of rising food and fuel prices early in 2012 and a slower pace of hiring amid a decelerating economy are the likely culprits behind the near reversal of gains in consumer comfort observed through the first quarter,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The ability of the household to reassert its place as the primary driver of growth during the current business cycle remains limited due to modest job growth and incomes.”

The comfort index’s decline over the past four weeks has erased almost all of this year’s gains. The gauge began the year at minus 44.8 and reached a four-year high of minus 31.4 in the week ended April 15.

‘Severe’ Discontent

Readings lower than minus 40 are correlated with “severe economic discontent,” according to Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg. The gauge has averaged minus 15.3 since its inception in December 1985.

More Americans than forecast filed applications for unemployment benefits last week, a sign the labor market is making little progress, figures from the Labor Department showed today. Jobless claims were unchanged at 370,000 in the week ended May 12.

The median forecast of 48 economists surveyed by Bloomberg News called for a drop in claims to 365,000. The number of people on unemployment benefit rolls rose, while those receiving extended payments decreased.

Stocks fell on concern about Europe’s debt crisis. The Standard & Poor’s 500 Index dropped 0.3 percent to 1,321.31 at 9:40 a.m. in New York.

All Components Fall

All three of the Bloomberg Consumer Comfort Index’s components declined last week, today’s report showed. The gauge of personal finances fell to minus 12.9, the fourth straight drop and the weakest reading since November, from minus 11.2 in the prior week. A measure of whether consumers consider it a good or bad time to buy decreased to minus 48.2, a three-month low, from minus 45.8. Americans’ views on the state of the economy fell to a 10-week low of minus 69.6 from minus 64.2.

“The latest trend is a sharp turnaround from the CCI’s recent recovery period,” Langer said in a statement. “A separate measure of economic expectations provides little solace.”

The monthly expectations gauge was little changed at minus 1 from minus 3 in April. During that period, job growth has shown signs of cooling.

Employers added 115,000 workers to payrolls last month, the weakest gain since October, according to Labor Department figures released May 4. The same report showed the unemployment rate fell to 8.1 percent as more Americans left the labor force.

Political Affiliations

With the presidential election less than six months away, sentiment among all political groups dropped last week. Confidence among Republicans fell to minus 40.2, the weakest reading since early February, from minus 36.9. Democratic sentiment slid to a two-month low of minus 34.8, from minus

32.7. The confidence measure for independents dropped to minus

48.6, the lowest level this year.

“Political turmoil can sometimes wreak havoc on consumer confidence, which does correlate with our business model in U.S. rent-a-car,” Mark Frissora, chief executive officer of Hertz Global Holdings Inc., said at a May 9 conference.

The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 consumers 18 years old 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.

Langer Research Associates compiles the index, for which field work is done by SSRS/Social Science Research Solutions in Media, Pennsylvania.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE