Consumer confidence in the U.S. dropped in August from a six-year high as interest rates rose and tensions in the Middle East intensified.
The Thomson Reuters/University of Michigan final index of consumer sentiment for this month fell to 82.1, a four-month low, from 85.1 in July, which was the highest since July 2007. Economists in a Bloomberg survey called for 80.5, according to the median projection after a preliminary reading of 80.0.
Higher mortgage rates are threatening to stall momentum in the housing market, and turmoil in Egypt and the threat of potential U.S. intervention in Syria is raising the specter of higher fuel prices. Though stocks have dropped this month, increased personal wealth from rising home values may help to contain the decline.
“There was a good bounce in confidence a couple of months ago, and there has probably been a little bit of reversal in the last couple of months as mortgage rates have risen,” Jim O’Sullivan, an economist at High Frequency Economics in Valhalla, New York and the top forecaster in Bloomberg data going back two years, said before the report.
Estimates in the Bloomberg survey ranged from 79 to 85. The index averaged 89 in the five years leading up to the last recession that began in December 2007 and 64.2 during the 18-month slump that ended in June 2009.
Other reports today showed consumer spending slowed in July and business activity picked up in August.
Household purchases, which account for about 70 percent of the economy, rose 0.1 percent after a revised 0.6 percent increase the prior month that was larger than previously estimated, the Commerce Department reported. The median forecast in a Bloomberg survey of economists called for a 0.3 percent rise. Incomes climbed 0.1 percent following a 0.3 percent advance in June.
The MNI Chicago Report business barometer rose to 53 in August from a reading of 52.3 the prior month. Numbers greater than 50 signal expansion. The median forecast of 53 economists surveyed by Bloomberg was 53.
The Michigan sentiment survey’s current conditions index, which takes stock of Americans’ view of their personal finances, declined to 95.2 in August from 98.6 last month. The preliminary August figure was 91.
The index of expectations six months from now fell to 73.7 this month from 76.5 in July. The preliminary August reading was 72.9.
Confidence measures have diverged this month. 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 past three weeks, a report yesterday showed.
Meanwhile, the Conference Board’s confidence index unexpectedly advanced to 81.5 from 81 the prior month, the New York-based private research group said this week.
Rising mortgage rates may be reining in confidence. The rate on a 30-year fixed loan was at 4.51 percent as of Aug. 29 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 this week.
Trouble in the Middle East may also have consumers watching pump prices. Inspectors from the UN are seeking to determine whether the regime of Syrian President Bashar al-Assad used chemical weapons in the Ghouta area near Damascus last week.
The effects of retaliatory strikes would reverse the “mild economic stimulus” that has resulted from gasoline prices rising more slowly during the first six months of 2013 than in recent years, Deutsche Bank economist Carl Riccadonna wrote in an Aug. 27 report.
Job market improvement, meantime, could be making consumers more confident.
Jobless claims in the week ended Aug. 24 declined by 6,000 to 331,000, according to figures from the Labor Department. The decrease was in line with the median forecast of 50 economists surveyed by Bloomberg that called for a drop to 332,000. The number of applications slumped to a more than five-year low of 322,000 earlier this month, a sign that the labor market continues to make progress.
GDP revisions for the second quarter this week showed consumer spending -- which counts for about 70 percent of the economy -- climbed 1.8 percent, the same as previously reported, propelled by gains in durable goods such as furniture and appliances. That followed a 2.3 percent increase from January through March. Purchases added 1.2 percentage points to growth.
“We are pleased with how our customer traffic improved this quarter even as broader market trends indicate the consumer behavior was somewhat subdued,” Craig Carlock, chief executive officer of Greensboro-based Fresh Market Inc., said in an August 28 earnings call. “Our promotional execution drove incremental traffic.”
Bon-Ton Stores Inc., a department store chain based in York, Pennsylvania, had a less-upbeat take on the state of the consumer.
“We believe the adverse impact of inclement weather, higher gas prices and higher taxes coupled with an unfavorable shift in consumer spending patterns contributed to the overall sales weakness,” chief executive officer Brendan L. Hoffman said in an August 22 second-quarter earnings call.