Consumer Comfort Falls Amid Mounting Concern Over U.S. Economy

Consumer confidence fell last week to its lowest level in more than three months as concern about the U.S. economy mounted.

The Bloomberg Consumer Comfort Index declined to minus 36.4 in the seven days ended Jan. 20, the weakest since early October, from minus 35.5 the prior period. The measure has fallen for three straight weeks, the longest slump since August.

The setback in sentiment corresponds to the two percentage-point increase in the payroll tax that took effect at the start of 2013, indicating the resulting drop in take-home pay has shaken Americans. Less discretionary income and confidence may slow consumer spending, which accounts for about 70 percent of the economy, and hurt sales at retailers including Coach Inc.

“Consumer sentiment continues to indicate displeasure with what, for most Americans, was an unexpected increase in the payroll tax at the beginning of the year amid the stagnant wage environment that has characterized the economic expansion,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York.

Claims for jobless benefits unexpectedly dropped last week to a five-year low, highlighting the challenges in adjusting the data for swings at the start of a year, another report showed.

Applications for unemployment insurance payments decreased by 5,000 to 330,000 in the week ended Jan. 19, the fewest since the same week in 2008, the Labor Department reported today in Washington. Economists forecast 355,000 claims, according to the median estimate in a Bloomberg survey.

Calendar Effect

“The swings are attributable to the calendar,” said Brian Jones, senior U.S. economist at Societe Generale in New York, who projected a drop to 328,000. He said the numbers probably will rise at the end of the month as the calendar returns to normal. “We’re going to pay for this,” he said.

Stocks were little changed, restrained by a slump in Apple Inc. Inc. after the world’s most valuable company reported the slowest profit growth since 2003 and weakest sales increase in 14 quarters. The Standard & Poor’s 500 Index was up less than 0.1 percent to 1,495.66 at 9:40 a.m. in New York.

Of the three components of the comfort index, the gauge measuring consumers’ views on the state of the economy was the only one to show a decline, retreating to minus 64.6, lowest level since October, from minus 60.3 the prior week.

The share rating the economy positively fell to 18 percent from 20 percent. Prior to last week, the figure had held at or above 20 percent for five consecutive periods, a first since early 2008.

Buying Climate

The other two components improved. The buying-climate gauge climbed to minus 42.8 from minus 43.3 after falling for four straight weeks. The report showed 29 percent of those surveyed said it was a good time to buy things they want or need, up from 28 percent the prior week, which was the lowest reading since September. Two in 10 called it an “excellent” time for purchases, up from one in 10 a week earlier.

The personal finances barometer rose to minus 1.8 from minus 2.7 the prior week. That may reflect consumers’ responses to contained inflation after a report last week showed the cost of living was also little changed in December, capping the smallest annual gain in the past decade.

Among groups, the biggest declines in confidence last week occurred among men, Democrats and full-time workers, who were the most pessimistic in four months. Waning sentiment among the employed underscores the role that the payroll tax may be playing.

The levy used to fund Social Security benefits reverted to 6.2 percent this year from 4.2 percent. That means someone earning $50,000 a year will get about $83 less per month.

Income Groups

Among income groups, consumer comfort among those earning $15,000 to $25,000 annually rose to minus 43.8, the highest in more than three years.

People making $25,000 to $50,000 saw the biggest declines in sentiment last week, a sign middle-income households may be the ones feeling the tax bite most.

The comfort gauge for people making $50,000 to $75,000 slid to the lowest level since June. The measure for those earning more than $100,000 was positive for the 12th consecutive week, even after slipping about two points.

Coach, the largest U.S. luxury handbag maker, is among companies saying sales are being hurt by bickering in Washington about taxes, budget cuts and the federal debt. The New York-based company yesterday reported second-quarter profit that trailed analysts’ estimates as sales at stores open at least a year in North America dropped 2 percent in the three months ended Dec. 29 from the same period a year earlier.

Coach Sales

“We were clearly disappointed in our North American performance,” Lew Frankfort, chief executive officer, said on an earnings call. There “was a muted consumer environment in the U.S. with a fiscal cliff uncertainty weighing on shoppers,” along with “intensified competition and heightened promotional activity” before the holidays, he said.

The House yesterday voted to temporarily suspend the nation’s borrowing limit, removing the debt ceiling as a source of contention for now.

The weekly comfort reading was higher among Democrats than Republicans last week for an unprecedented 44th straight time, a record in data back to 1990, today’s report showed. Nonetheless, the index for registered Democrats fell to the lowest level since early October.

The Bloomberg Consumer Comfort Index, compiled by Langer Research Associates in New York, conducts telephone surveys with a random sample of 1,000 consumers 18 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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