Tuesday, June 29, 2010

U.S. Economy: Consumer Confidence Sinks

U.S. Economy: Consumer Confidence Sinks on Concern Over Jobs

By Timothy R. Homan

June 29 (Bloomberg) -- Confidence among U.S. consumers sank in June more than forecast as Americans became distressed over the outlook for jobs and incomes.

The Conference Board’s confidence index slumped to 52.9 this month, below the lowest forecast of economists surveyed by Bloomberg News, from a revised 62.7 in May, figures from the New York-based private research group showed today. Another report showed home prices climbed, propelled by a homebuyer credit.

Stocks plunged as the confidence data, combined with Conference Board figures showing China’s economic outlook improved less than previously estimated, added to concern the global economy is slowing. Unemployment and the turmoil in financial markets precipitated by the European debt crisis raise the risk that household spending will falter.

“What we need are consistent job gains, not just a month or two,” said Richard DeKaser, chief economist at Woodley Park Research in Washington, whose confidence forecast was the lowest of those surveyed. “Until we get that, I don’t think we’re going to see any gains in consumer confidence.”

The Standard & Poor’s 500 Index dropped below its lowest closing level of the year, and the yield on two-year Treasury notes fell to a record low. The S&P 500 decreased 2.6 percent to 1,046.81 at 11:59 a.m. in New York. The two-year Treasury note’s yield slid as low as 0.5857 percent.

Home Prices

Home prices in 20 U.S. cities rose in April from a year earlier as sales got a boost from a tax credit aimed at reviving the industry that triggered the worst recession since the 1930s, another report showed.

The S&P/Case-Shiller index of property values climbed 3.8 percent from April 2009, the biggest year-over-year gain since September 2006, the group said today in New York. The increase exceeded the median forecast of economists surveyed.

“It’s just a transitory bounce reflecting the flurry of activity before the expiration of the homebuyer tax credit,” said John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston. “As the tax credit is unwound and sales are plunging, the pricing environment is once again weakening.”

The median forecast of 71 economists surveyed by Bloomberg News projected the consumer confidence index would fall to 62.5 from a prior reading of 63.3 in May. Estimates ranged from 59.5 to 65. Last’s month’s level was the highest in two years and the index averaged 97 during the expansion that ended in December 2007.

Confidence Breakdown

The group’s measure of present conditions decreased to 25.5 in June from 29.8 a month earlier. The gauge of expectations for the next six months dropped to 71.2 from 84.6. Both gauges were the lowest in three months.

Some companies are seeing consumers pull back on purchases. Best Buy Co., the world’s largest consumer-electronics retailer, this month reported first-quarter profit that rose less than analysts projected as some U.S. shoppers bought fewer games and movies.

Bed Bath & Beyond Inc., a Union, New Jersey-based home- accessory retailer, this month forecast fiscal second-quarter and annual earnings that trailed analysts’ estimates.

“While it appears that the economic environment may be stabilizing, persistent high unemployment and uncertainty in the economy could continue to pressure the consumer and affect their spending,” Steven H. Temares, the company’s chief executive officer, said on a June 23 conference call with analysts.

Jobs, Incomes

The percent of consumers projecting more jobs to become available in the next six months and the proportion who expected their incomes to rise declined, today’s report showed.

While the U.S. has created jobs every month this year, companies in May added the fewest number of workers in four months, according to figures from the Labor Department. The jobless rate was at 9.7 percent last month, compared with a 26- year high of 10.1 percent reached in October.

“Increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence,” Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement. “Until the pace of job growth picks up, consumer confidence is not likely to pick up.”

Consumers’ plans to buy automobiles, appliances and homes declined in June, with the percentage of people who said they intend to buy a car dropping to the lowest since records began in 1967, today’s report showed. Vacation plans also fell.

Demographic Breakdown

The Conference Board compiles the data from a representative sample of 5,000 American households. The survey cutoff date for today’s report was June 22, the group said.

Americans under the age of 35 and those making from $15,000 to $24,999 a year saw the biggest decreases in confidence this month. Regionally, consumers living in the East South Central area, which includes Kentucky, Tennessee, Mississippi and Alabama, were the most shaken, followed by those in the area spanning from Maryland to Florida.

Today’s confidence report ran counter to the final reading of the Thomson Reuters/University of Michigan index, which showed its confidence measure climbed to a two-year high this month.

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