Gain for Highest Earners Helps Bolster U.S. Consumer Confidence

Confidence among U.S. consumers was little changed last week as gains for top earners helped overcome growing pessimism at the other end of the income scale.

The Bloomberg Consumer Comfort Index was at minus 34 in the period ended April 7 compared with minus 34.1 the prior week. Those earning more than $100,000 were the most optimistic since late 2010, while households earning less than $15,000 were the most pessimistic in three months.

Record stock prices and the rebound in housing may be helping support sentiment for the more well-off Americans. Conversely, the increase in the payroll tax and higher gasoline prices at the start of the year, combined with a slowdown in hiring, may be taking a toll on those of more modest means and the unemployed, indicating growth will cool.

“Consumer sentiment, like the U.S. economy in the current quarter, continues to move sideways, as lower-income cohorts show signs of strain,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Investors should expect the risk of further deterioration in overall sentiment as the impact of sequestration takes hold in coming weeks.”

Another report today showed applications for unemployment benefits plunged last week, unwinding a surged caused by the Easter holiday and spring break at schools. Jobless claims decreased by 42,000 to 346,000 in the week ended April 6, according to the Labor Department in Washington.

Holiday Swings

Holidays such as Easter that fall on different weeks from year to year make it difficult to smooth out swings in the data, leading to increased volatility, the Labor Department said as the numbers were released to the press. Waning firings, a sign employers are retaining workers to meet sales, help to lay the ground for the hiring gains needed to sustain consumer spending, the biggest part of the economy.

Stocks were little changed after the Standard & Poor’s 500 Index rallied to a record yesterday. The S&P 500 fell 0.1 percent to 1,586.71 at 9:40 a.m. in New York.

The Bloomberg Consumer Comfort Index has held within a 0.5-point range for the past month.

The measure assessing Americans’ views on the current state of the economy climbed to minus 58.7 from minus 60.6. The share of consumers giving the economy the worst rating of “poor” fell to 32 percent last week, down nine points over the past month and the smallest since early 2008.

The buying-climate index improved to minus 40.3 from minus 40.7 the prior week. Thirty percent said it was a good time to buy things that they want or need, unchanged from last week.

Personal Finances

By contrast, the gauge of personal finances fell to minus 2.9, its lowest level since Jan. 27, from minus 0.9.

Americans may be feeling the pinch of the increase in the payroll tax. The levy that funds Social Security reverted at the start of the year to its 2010 level of 6.2 percent from 4.2 percent. Workers earning $50,000 take home about $83 less a month.

The job outlook may also have harmed sentiment. While unemployment fell to 7.6 percent in March, the economy added 88,000 jobs, the smallest gain in nine months and less than the most pessimistic projection in a Bloomberg economist survey, Labor Department data showed last week.

Meantime, rising stocks and an improving housing market may have helped attitudes. The S&P 500 has gained 11.3 percent this year through yesterday, when it closed at a record high of 1,587.73.

Housing Recovery

Household wealth is also getting a boost from the recovery in residential real estate. Home prices rose 10.2 percent in the 12 months through February, the biggest increase in almost seven years, according to Irvine, California-based CoreLogic Inc.

The crosscurrents may be widening the fissure between demographic groups. Confidence for households earning $100,000 or more climbed 7 points to 12.6 last week, its highest since October 2010.

“We feel good about the consumer in 2013,” Karen M. Hoguet, chief financial officer of Macy’s Inc., said at a March 13 investor conference. “Every indication we’re seeing is that he and she are doing fine, still buying.”

At the same time, confidence slumped among those earning less than $15,000 for a third week after rising throughout March. The gauge dropped 10.8 points to minus 60.3, the lowest reading since Jan. 13.

Confidence among those not employed fell to its lowest level in five months.

Darden Restaurants Inc.’s President and Chief Operating Officer Andrew H. Madsen acknowledged in an April 4 presentation that the picture wasn’t all positive.

Wage Growth

“Maybe they’re still unemployed, maybe their wages aren’t growing the way they want them to grow, but there’s a large group of consumers who are more financially constrained than they would like and can’t go out as often,” he said. Darden’s brands include Olive Garden and Red Lobster.

There was also a regional bias to underlying changes in sentiment. Southerners were the most upbeat since late October, while Westerners were the most pessimistic since September.

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.

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