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Consumer Comfort in U.S. Climbs to Highest Level in Two Months

Shopping in New York
Pedestrians holding shopping bags walk on Fifth Avenue in New York. Photographer: Jin Lee/Bloomberg

Consumer confidence in the U.S. climbed last week to the highest level in two months as optimism over personal finances helped alleviate growing apprehension about the economy.

The Bloomberg Consumer Comfort Index rose to minus 36.1 in the week ended June 24 from minus 37.9 in the previous period. The gauge of household finances was positive for the first time since April, while sentiment toward the state of the economy dropped to the lowest level since February.

A 57-cent decrease in gasoline prices since early April is providing some relief, helping offset concern the job market is weakening by allowing employed Americans to stretch their paychecks. At the same time, sentiment among higher-income households turned negative for the first time in three months as Europe’s debt crisis hurts stock prices.

“The decline in confidence among households earning more than $100,000 per year likely reflects concerns about portfolio exposure to the crisis in Europe and the global economic slowdown,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. Since the top 40 percent of income earners accounts for about 60 percent of consumer purchases, “even a modest pullback can have outsized effects on household spending and overall growth,” he said.

Another report today showed the number of applications for unemployment benefits hovered last week near the highest level of the year, showing little improvement in the labor market. Jobless claims fell by 6,000 to 386,000 in the week ended June 23, Labor Department figures showed today in Washington.

Stocks Fall

Stocks fell as JPMorgan Chase & Co. tumbled on a report that the lender’s trading losses may total as much as $9 billion. The Standard & Poor’s 500 Index dropped 0.8 percent to 1,321.6 at 9:40 a.m. in New York.

The Bloomberg sentiment gauge, which has increased in five of the past six weeks, may signal a turnaround for other confidence readings. The Conference Board’s sentiment index fell in June to a five-month low, the New York-based group said this week. The Thomson Reuters/University of Michigan’s measure dropped this month to the lowest level this year.

The Bloomberg index of personal finances climbed to 4.4, the highest since the period ended April 15, from minus 2.3 in the prior week. The gauge of whether consumers consider it a good time to buy was minus 40.9, also the highest since mid-April, after minus 41.7 in the prior period.

The index of the state of the national economy decreased to minus 71.9 from minus 69.8. Some 86 percent said the economy was in “bad shape.”

Gasoline Prices

Lower prices at the gas pump may have underpinned sentiment last week. The average cost of a gallon of regular unleaded was $3.37 yesterday, down from a high of $3.94 on April 5, according to AAA, the nation’s largest auto group.

Cheaper fill-ups may have been reflected in a jump in sentiment among some lower wage earners. Confidence of those with incomes from $15,000 to $24,900 jumped to minus 65.5 from minus 79.3.

At the same time, further gains may be tougher to come by without a pickup in the labor market. Companies added the fewest number of jobs in a year in May and the unemployment rate rose to 8.2 percent from 8.1 percent. It’s held above 8 percent for 40 consecutive months, the longest stretch of such elevated levels in the post-World War II era.

Among those Americans earning more than $100,000 a year, sentiment dropped to the weakest level since March 18. The decrease may raise the odds that retailers will continue to see demand cool after sales dropped over the past two months.

Coach Inc.

Shares of Coach Inc., the largest U.S. luxury handbag maker, slumped 25 percent since the end of March through yesterday on investor concern that department-store sales are slowing.

“Obviously, the macro environment is uncertain and one of the things that we work hard to do is to navigate nimbly through that environment,” Chief Executive Officer Lew Frankfort told investors June 5 at a consumer conference.

Today’s figures also showed that the disparity in consumer confidence between blacks and white widened this week to the largest gap since mid-1990. The measure of sentiment among blacks jumped to minus 18.8 last week from minus 34.2. For whites, the gauge dropped to minus 39.1. It was the sixth time the index has been higher among blacks than whites by double-digits.

Political Aspect

“With the first African-American president seeking re-election, there’s likely a political aspect to consumer sentiment among blacks, as well as among partisan political groups,” Gary Langer, president of Langer Research Associates in New York, which compiles the index for Bloomberg, said in a statement.

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

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