Michigan Consumer Sentiment Index Decreased in January

Consumer confidence in the U.S. declined in January from a month earlier, indicating spending may cool following the biggest gain in three years at the end of 2013.

The Thomson Reuters/University of Michigan final index of sentiment dropped to 81.2 this month from 82.5 in December. The median estimate in a Bloomberg survey called for a decline to 81 after a preliminary January reading of 80.4.

Less optimism, partly a reflection of declining stock prices this month, may signal households will temper their spending, which climbed in the fourth quarter at fastest pace since 2010. A report today showed incomes after taxes and adjusted for inflation dropped last month by the most since January 2013.

“If you’re going to have anything like the consumption gains we saw last quarter, you’re going to need to see a pickup in income growth,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “You could expect to see a little bit of moderation in the pace of spending relative to last quarter.”

Estimates of the 68 economists in the Bloomberg survey ranged from 79 to 82.5. The index averaged 89 in the five years before December 2007, when the last recession began, and 64.2 in the 18-month contraction that followed.

A report today from the Commerce Department showed personal spending rose 0.4 percent in December, more than forecast, after a 0.6 percent gain a month earlier that was more than previously estimated. Incomes, though, were unchanged. Without bigger gains in pay, Americans will probably have difficulty sustaining the spending pickup.

Disposable Income

Disposable income, or the money left over after taxes, dropped 0.2 percent in December after adjusting for inflation from the prior month, the biggest decrease in 11 months. Over the past year, it decreased 2.7 percent, the largest year-to-year drop since November 1974, reflecting the impact of the expiration of the payroll tax break, the increase in some income taxes earlier in the year and weak wage gains.

The Michigan sentiment survey’s current conditions index, which measures Americans’ view of their personal finances, decreased to 96.8 in January from 98.6 a month earlier. The preliminary reading was 95.2.

The index of expectations six months from now fell to 71.2 from 72.1 last month. The preliminary gauge of the outlook showed a decline to 70.9.

Other Measures

Other measures of January consumer sentiment have been mixed. The Bloomberg Consumer Comfort Index for the week ended Jan. 26 fell to its lowest since the end of November. The New York-based Conference Board’s measure of sentiment climbed in January to a five-month high.

Consumer spending that rose at the fastest rate since the end of 2010 helped the economy expand at a 3.2 percent pace in the fourth quarter, the Commerce Department said yesterday.

Gains in wealth are giving Americans the confidence to spend. The S&P/Case-Shiller index of home prices in 20 U.S. cities rose in November from a year ago by the most since 2006. The Standard & Poor’s 500 Index jumped 20 percent in 2013, marking its best performance since 1997. At the same time, the S&P 500 has declined almost 3 percent so far this year through yesterday.

San Antonio, Texas-based Cullen/Frost Bankers Inc., the holding company of Frost Bank, is among those that say faster employment gains are needed to brighten sentiment.

“Businesses are beginning to grow again, but confidence is guarded,” said Richard Evans, the company’s chairman and chief executive, on a Jan. 29 earnings call. “Nationally we are still lacking the job growth needed to spur strong consumer confidence and robust economic recovery.”

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