Consumer Sentiment in U.S. Declines Less Than Forecast

Consumer sentiment held close to a six-year high in June as higher home values gave Americans more reason to be optimistic about the economy.

Thomson Reuters/University of Michigan said today its final confidence index for this month eased to 84.1, higher than the median forecast in a Bloomberg survey, from 84.5 at the end of May. The group’s measure of the economic outlook climbed to an eight-month high. Other data from the MNI Chicago Report showed manufacturing is struggling to gain traction.

An improving housing market is sustaining sentiment and making up for the hit to household wealth from a recent setback in stock prices. Further strides in employment and housing will help provide more fuel for an economy beset this quarter by federal budget cuts.

“Consumers are more attuned to the labor market gradually getting better and the rise in house prices” rather than declining stock prices or increasing mortgage rates, said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut, who projected a sentiment reading of 84. “Growth in the second half is going to be a little better than it is in the first half.”

Stocks fell as investors weighed the economic data. The Standard & Poor’s 500 Index declined 0.1 percent to 1,611.79 at 12:54 p.m. in New York.

The MNI Chicago Report’s business barometer dropped to 51.6 this month from 58.7 in May, which was the highest in more than a year. A reading of 50 is the dividing line between expansion and contraction. The median forecast of 56 economists surveyed by Bloomberg was 55.

Regional Reports

The index has been out of sync with other regional factory reports, surging in May when others pointed to a slump, and dropping this month as measures from the Federal Reserve Banks of New York and Philadelphia point to a rebound.

The Chicago group’s measure of new orders fell in June from a three-month high, while backlogs slumped to the lowest level since September 2009. Manufacturing makes up about 12 percent of the economy.

“It’s going to be an uneven path toward growth,” said Thomas Simons, money market economist at Jefferies & Co. Inc. in New York. “Manufacturing should gain steam in the second half” of 2013.

American factories stand to gain as economies in Europe and Japan stabilize. German retail sales rose in May more than economists forecast, adding to signs that a recovery in Europe’s largest economy has gathered pace amid record-low interest rates.

In Japan, the economy strengthened in May as factory output rose the most since December 2011 and retail sales climbed.

Current Conditions

The drop in the Michigan survey this month was centered in the current conditions index, which takes stock of Americans’ views of their personal finances. The measure decreased to 93.8 from 98 in May, which was the highest since August 2007. It compared with a preliminary June reading of 92.1.

The index of expectations six months from now climbed to an eight-month high of 77.8 from 75.8 in May. The preliminary June figure was 76.7.

The median forecast in a Bloomberg survey of economists called for 83 in the overall gauge after a preliminary reading of 82.7. The index in May was the highest since July 2007. Estimates of the 68 economists for sentiment in the Bloomberg survey ranged from 80.5 to 85.3.

Upper Income

Resilient sentiment this month was concentrated among households with incomes above $75,000 a year, the report showed. At the same time, all income groups expected “continued modest gains in the overall economy as well as continued declines in the national unemployment rate,” the group said in a statement.

Winnebago Industries Inc., based in Forest City, Iowa, is among companies boosting production of its recreational vehicles to meet improving demand.

“This is a reflection of our dealer network’s confidence in our motorhome products, as well as a confidence in the overall industry as they prepare for the summer season,” Randy Potts, chairman and chief executive officer, said on a June 27 earnings call.

A report yesterday showed consumer spending, which accounts for about 70 percent of the economy, increased in May following the largest drop in more than three years. Purchases rose 0.3 percent after a 0.3 percent decline the prior month, Commerce Department figures showed. Incomes advanced 0.5 percent, more than projected.

Home Values

Home purchases also kept improving this month, according to those surveyed by the University of Michigan. Rising home values were reported by the highest share of consumers since 2007, and fewer than 1 in 10 homeowners said they would lose money if they sold their house.

Property prices in the 12 months through April rose by the most in more than seven years. The S&P/Case-Shiller index of property values increased 12.1 percent from April 2012, the biggest year-over-year gain since March 2006, after advancing 10.9 percent a month earlier, according to the June 25 report.

Rising real estate values are helping offset a drop in share prices. Global stocks and bonds retreated after Federal Reserve Chairman Ben S. Bernanke on June 19 outlined the conditions that would prompt the Fed to reduce and eventually end $85 billion in monthly asset purchases.

“As market participants gain additional insight from the words of Federal Reserve officials or by policy actions in coming quarters, further asset price volatility seems likely,” Federal Reserve Bank of Richmond President Jeffrey Lacker, who doesn’t vote on policy this year, said in a speech today. “This type of volatility is a normal part of the process of incorporating new information into financial asset prices.”

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