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Consumer Comfort in U.S. Declines to a More Than Four-Month Low

Aug. 29 (Bloomberg) -- Consumer confidence fell for a third straight week to the lowest level in more than four months as Americans’ views on the economy, finances and spending soured.

The Bloomberg Consumer Comfort Index declined to minus 31.7 for the period ended Aug. 25, its weakest reading since April 7, from minus 28.8 a week earlier. The gauge has dropped 8.2 points in the three weeks since reaching a more than five-year high.

Rising mortgage rates and concern that turmoil in the Middle East will push up fuel costs is probably unsettling households. That means it will take bigger gains in employment and incomes to propel the consumer spending that accounts for about 70 percent of the economy.

“Households are estimating possible reductions in disposable income due to rising gasoline prices and interest rates,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York, adding that consumers have their eye on political strife in Syria and Egypt. “The way it translates into the U.S. pocketbook is rising gas prices.”

Other reports today showed the economy grew more than previously estimated in the first quarter and fewer Americans filed applications for unemployment benefits last week.

Gross domestic product rose at a 2.5 percent annualized rate, up from an initial estimate of 1.7 percent, Commerce Department figures showed.

Jobless claims in the week ended Aug. 24 declined 6,000 to 331,000 from 337,000 the week before, according to figures from the Labor Department.

Shares Fluctuate

Stocks were little changed as investors weighed the improving economic data with concern over turmoil in the Middle East. The Standard & Poor’s 500 Index fell less than 0.1 percent to 1,634.12 at 9:35 a.m. in New York.

All three components of the Bloomberg index retreated last week. Consumers had a more pessimistic view of the state of the economy as the gauge declined to minus 55.1 from minus 52.6 the prior week. The reading was at its worst since July.

The buying climate gauge fell to minus 38.7, its lowest since June, from minus 36.7. The move could herald weaker consumer spending, because the largest share of consumers since March said this is a poor time to buy wanted or needed items.

Americans’ views of their personal finances dropped to minus 1.3, the first time the index has been negative since April, from 3 the prior week.

The Bloomberg comfort index contrasts with changes in other measures. The Conference Board’s confidence index unexpectedly advanced to 81.5 from a revised 81 the prior month that was stronger than initially estimated, the New York-based private research group said this week.

Other Measures

The cutoff day for the Conference Board’s preliminary results was Aug. 15, prior to an Aug. 21 attack in a Damascus suburb where Syrian President Bashar al-Assad’s regime allegedly used chemical weapons against civilians. The act has intensified debate over possible U.S. intervention.

The Obama administration is seeking to clarify the objectives and establish the legal justification for an attack before committing itself to military action, an official told Bloomberg. Assad and his government have denied using chemical weapons.

“Deepening U.S. involvement can spiral out in unpredictable ways given a more belligerent Iran and the ongoing confrontation over its nuclear program,” Eric Green of TD Securities in New York wrote in an Aug. 28 note to clients. “Strikes on Syria do nothing to impede the flow of oil out of the Mid East. A wider issue with Iran almost certainly would.”

Borrowing Costs

Rising mortgage rates are probably another concern. The rate on a 30-year fixed loan climbed to 4.58 percent as of Aug. 22 from a November low of 3.31 percent, according to Freddie Mac data. New home sales dropped to 394,000 last month, the lowest reading since October, according to Commerce Department data. Pending home sales declined 1.3 percent in July from the prior month, the National Association of Realtors reported yesterday.

Though consumer confidence has been shaken, rising home prices may be making households feel richer, tempering the decline. The S&P/Case-Shiller index of property values in 20 cities rose 12.1 percent in June from the same month in 2012 after rising 12.2 percent in the year ended in May, which was the biggest gain since March 2006, the New York-based group said this week.

Even as wealth from home equity and stock market gains helps some customers, the one thing companies have learned since the recession is that consumer spending has turned unpredictable, Gap Inc. Chief Executive Officer Glenn Murphy said in an Aug. 22 earnings call.

‘New Paradigm’

“We figured out as a management team in 2008 that we were dealing with a new paradigm,” said Murphy, whose company’s sales were up 5 percent in the second quarter compared with last year. “It’s not uncommon for customers, for very little reason or any reason, to go into hibernation.”

Slowing customer traffic hurt U.S. sales at Foot Locker Inc., even as the company produced its best-ever second-quarter profit on stronger performance abroad.

“We aren’t the only ones that are having some slowdown of traffic,” Chief Executive Officer Kenneth C. Hicks said in an Aug. 23 conference call. “It’s the consumer that’s slowed down overall. We still are not great, but we’re better than most.”

Today’s figures showed confidence dropping among less-advantaged socioeconomic groups, reversing improvements made earlier in the month. Those making less than $15,000 lost 9.2 points to minus 57.2. Comfort also fell among those making $50,000 to $74,900, falling 9.5 points to minus 25.5. The highest-income earners remained positive, with the gauge for those making more than $100,000 a year at 16.8 compared with 18.8 the prior week.

Part-Time Workers

Part-time workers were the least confident since November, and sentiment among political independents slipped to a five-month low.

Confidence took the biggest hits in the Midwest and the West, dropping 8.1 points and 5.2 points, respectively. Even so, both regions remain more optimistic than the Northeast and the South.

Among age groups, respondents between the ages of 55 and 64 showed the largest decline in sentiment, dropping 5.2 points to minus 40.4 and surpassing the 35 to 44 age group as the most pessimistic. All age groups lost some ground, with senior citizens posting the smallest decline.

The Bloomberg Consumer Comfort Index conducts telephone surveys with a random sample of 1,000 consumers ages 18 and older. Each week, 250 respondents are asked for their views on the U.S. economy, personal finances and buying climate. The margin of error for the headline figure is 3 percentage points. 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.

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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