Americans’ Outlook for U.S. Economy Falls to Seven-Month Low

Americans’ expectations for the economy deteriorated to a seven-month low in May, a sign that the rebound from weakness earlier this year may be limited by still-cautious consumers.

An expectations gauge that tracks where the economy is heading declined to 42.5 in May from 48 in the month prior, data from the Bloomberg Consumer Comfort Index showed today. The share of respondents who said the economy was getting worse climbed to the highest level this year. The weekly measure of sentiment declined to 34.1 in the period ended May 18 from 34.9, the third straight drop.

Wages last month failed to keep pace with a rising cost of living as prices increased for such necessities as food and fuel. Stronger hiring that leads to fatter paychecks would help spur confidence and provide households the wherewithal to boost their spending.

“We’re having a very disappointing rebound from a slowdown that was thought to have been caused only by the weather,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. The lagged effect of elevated interest rates and gasoline prices, as well as weaker equity gains, “have taken at least a temporary bite out of sentiment.”

Another report today showed claims for unemployment benefits rose more than forecast last week. Jobless claims increased by 28,000 to 326,000 in the week ended May 17, Labor Department figures showed in Washington.

Stock Index

Stocks were little changed at 9:33 a.m., with the Standard & Poor’s 500 Index rising less than 0.1 percent to 1,888.48.

Some 37 percent of those surveyed for the Bloomberg comfort index said the economy was worsening, up from 31 percent in April, while the share of respondents who saw an improvement dropped by the most since October.

Bloomberg’s weekly measure of the economy declined to 20.6 last week, the lowest level since early February, from 21.5 in the prior period.

The buying-climate measure, which asks consumers whether this is a good time to make purchases, dropped to a six-week low of 30.9 from 32.2. The gauge of personal finances held at 50.8, also the weakest since the first week of April.

Elevated prices at grocery stores and gas stations are probably souring Americans’ views of the economy. The consumer-price index increased 0.3 percent in April, the biggest advance since June, the Labor Department said last week. Food prices climbed 0.4 percent for a third consecutive month as the cost of meat advanced by the most since November 2003.

Gasoline Prices

While gasoline prices were little changed last week from the prior period at an average $3.65 a gallon, they were up from $3.18 six months earlier. Fuel costs reached $3.70 on April 26, the highest since March 2013.

As prices rise, inflation-adjusted earnings are taking a blow. Real hourly wages fell 0.3 percent in April from a month earlier and declined 0.1 percent from April 2013, the first year-over-year decrease since October 2012.

Further job gains may lay the groundwork for higher wages and confidence. Payrolls climbed by 288,000 workers in April after a 203,000 increase the previous month that was larger than first estimated, the Labor Department said this month.

Today’s figures showed sentiment fell in five of seven income brackets last week, with those making more than $100,000 leading the decline. Sentiment among the highest-earning Americans dropped 3.6 points to 52.9, the lowest level since the week ended Feb. 2. The gauge has declined by 9.4 points in the past month.

Biggest Drop

Among the regions, the South showed the biggest drop in confidence, with a decline of 2.6 points to a one-month low of 35. Sentiment fell in the Northeast and rose in the Midwest and West.

This is the fourth release in which the Bloomberg comfort index has been presented on a scale of zero to 100 rather than the previous minus 100 to 100, with the midpoint shifting to 50 from zero. The change is also reflected in the gauge’s components. It doesn’t affect the measures’ relationship to each other or their correlation with other economic indicators. Historical data has been revised and analysis of trends, values and other variables also aren’t affected.

Before it's here, it's on the Bloomberg Terminal.