Consumer Sentiment in U.S. Declines to a Nine-Month Low

Confidence among consumers fell in April to a nine-month low as Americans grew more pessimistic about the outlook for the economy.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment declined to 72.3 in April from 78.6 a month earlier. This month’s reading was lower than all 69 estimates in a Bloomberg survey that called for no change from the March number. Consumers’ assessments of their financial situation deteriorated.

The figures are a sign Americans may be feeling the lagged effects of a higher payroll tax and they follow a report today that showed March retail sales fell by the most in nine months. At the same time, stock prices close to all-time highs and rising property values are helping to improve household finances, which may keep spending from faltering.

“If this weakness persists, then I think it will likely temper spending in coming months,” said Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York. “The rollback on payroll taxes is beginning to have an impact on consumer spending activity and consumer confidence.”

Stocks fell after the reports, dragging the Standard & Poor’s 500 Index down from a record. The S&P 500 declined 0.6 percent to 1,584.59 at 10:42 a.m. in New York.

Forecasts in the Bloomberg survey ranged from 74 to 84.5. The index averaged 64.2 during the recession that ended in June 2009, and 89 in the five years prior to the 18-month slump.

Retail Sales

A report earlier showed retail sales fell last month by the most since June, showing household spending ended the first quarter on softer footing. The 0.4 percent decrease followed a 1 percent gain in February, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for no change. Department stores and electronics dealers were among the weakest showings.

The Michigan survey compares with Bloomberg’s measure of sentiment, which has been little changed over the past four weeks, holding within a 0.5-point range. The Bloomberg Consumer Comfort Index was minus 34 in the week ended April 7 from minus 34.1 the prior period.

The Michigan survey’s current conditions index, which measures whether Americans think it’s a good time to make big investments and gauges consumers’ view of their personal finances, dropped to a preliminary reading of 84.8 in April, the lowest in nine months, from 90.7 in March.

Consumer Expectations

The index of expectations six months from now, which more closely projects the direction of consumer spending, decreased to 64.2 this month from 70.8 in the prior period.

The report showed that Americans are now more likely to expect lower permanent after-tax incomes. At the same time, they maintained positive buying plans for automobiles and houses. More consumers -- 32 percent -- said they expected the unemployment rate to increase, compared with 24 percent who said it will decline.

Rising home prices are improving household balance sheets, a source of strength for spending and the economy. 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.

Stocks are also adding to net worth, while cheaper prices at the gas pump give consumers more money to spend on other goods and services. The S&P 500 climbed for a fourth day yesterday, closing at a record high.

Gasoline Prices

The average price of a gallon of regular gasoline was $3.56 yesterday, down from a recent high of $3.79 on Feb. 26, according to figures from AAA, the largest U.S. motoring group.

The labor market cooled in March. Payrolls grew by 88,000 last month, the smallest increase since June, the Labor Department said on April 5. Average hourly earnings were unchanged in March from the prior month, the weakest showing since October.

Workers are also paying higher payroll taxes. The levy that funds Social Security reverted in January to its 2010 level of 6.2 percent from 4.2 percent. A person earning $50,000 is taking home about $83 less a month as a result.

The challenges aren’t lost on some companies such as Matthews, North Carolina-based Family Dollar Stores Inc.

“Whether it’s the payroll tax increase, tax refund delays, gas prices or difficult weather comparisons, all of these factors make near-term trends difficult to predict,” Howard Levine, the company’s chief executive officer, said on an April 10 earnings call. “As we move into the second half of fiscal 2013, our discretionary sales continue to be challenged by both the financial pressures facing our customers as well as unseasonably cold spring weather.”

Consumers in today’s confidence report said they expect an inflation rate of 3 percent over the next 12 months, compared with 3.2 percent in March. Over the next five years, Americans expected a 2.8 percent rate of inflation, the same as in March.

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