Wednesday, February 24, 2010

Consumer Confidence in U.S. Falls to 10-Month Low as Outlook for Jobs Dims

U.S. Economy: Confidence Falls to Lowest Since April

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Confidence among U.S. consumers fell in February to the lowest level in 10 months, a sign that concern about job prospects may hold back the spending needed to sustain the recovery.

The Conference Board’s confidence index slumped to 46, below the lowest forecast in a Bloomberg News survey of economists, from 56.5 in January, a report from the New York- based private research group showed today. A separate report showed home prices rose for a seventh month.

Stocks fell and Treasuries gained after the confidence report also showed attitudes about current conditions fell to the lowest level in 27 years and the outlook for wages dimmed. The survey reinforces expectations Federal Reserve Chairman Ben S. Bernanke will repeat the central bank’s pledge to keep interest rates low for “an extended period” in testimony to Congress tomorrow.

“Consumer spending is going to disappoint throughout most of the year,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York. The economy “may not be out of the woods.”

Economists forecast the confidence index would decrease to 55 from a previously reported 55.9 January reading, according to the median of 68 projections in the Bloomberg survey. Estimates ranged from 50.9 to 59.

The Standard & Poor’s 500 Index declined 1.2 percent to 1,094.6 at 4:05 p.m. in New York. The 10-year Treasury note rose, pushing down the yield 11 basis points to 3.69 percent.

Stock Prices

Chris Low, chief economist at FTN Financial in New York, said in an e-mail to clients that the larger-than-anticipated decline may have also reflected a drop in stock values. The S&P 500 fell 8 percent to a closing low this month of 1,056.74 on Feb. 8 from a January high of 1,150.23.

The S&P/Case-Shiller home-price index of 20 U.S. cities increased 0.3 percent. Compared with December 2008, prices fell 3.1 percent, the smallest year-over-year decline since May 2007.

“There’s no precedent for such a sharp turnaround in the data that we have going back to 1987,” Robert Shiller, co- founder of the index, said today on a conference call with reporters. He said the eventual end to the Fed’s purchase of mortgage-backed securities and expectations for a higher federal funds rate make it difficult to forecast home prices.

The Conference Board’s measure of present conditions decreased to 19.4, the lowest since February 1983, from 25.2.

Jobs Hard to Get

The share of consumers who said jobs are plentiful fell to 3.6 percent from 4.4 percent, according to the Conference Board. The proportion of people who said jobs are hard to get increased to 47.7 percent from 46.5 percent.

“The vicissitudes of the political situation in Washington cannot be helping,” said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts. “There has been a lot of sizzle on job stimulus proposals but no meat is coming out of the sausage factory. Now the focus seems to be moving back to the health-care reform issue.”

The gauge of expectations for the next six months decreased to 63.8, the lowest since July 2009, from 77.3 the prior month.

The proportion of people who expect their incomes to increase over the next six months declined to 9.5 percent from 11 percent. The share expecting more jobs in the next six months fell to 13.4 percent from 15.8 percent.

The report also showed the Middle and South Atlantic were among regions with declines in confidence, which sustained two blizzards this month. Sentiment also waned in areas not affected, such as the Mountain and Pacific regions.

Unemployment Outlook

The unemployment rate is expected to average 9.8 percent this year, according to the median forecast of a Bloomberg survey taken early this month.

An increase in initial jobless claims so far this year signals the labor market isn’t improving, said Ricchiuto. Claims rose to 473,000 in the week ended Feb. 13, compared with 432,000 at the end of 2009, the lowest since July 2008.

Consumer spending will grow 2 percent this year, according to the median estimate of economists surveyed by Bloomberg this month. That would follow last year’s 0.6 percent decline, the worst showing since 1974.

The world’s largest economy will expand 3 percent this year after shrinking 2.4 percent in 2009, according to the median forecast of economists.

Some retailers are turning more optimistic. Lowe’s Cos., the second-largest U.S. home-improvement chain, posted fourth- quarter profit that exceeded analysts’ estimates after better- than-forecast sales signaled a recovery in the housing market.

“While the psychological impact of falling home prices and an uncertain employment picture continue to weigh” on consumers, Americans are “gaining the confidence to take on more discretionary projects.” Robert Niblock, Lowe’s chief executive officer, said in a statement Feb. 22. “The worst of the economic cycle is likely behind us.”

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