Jin Lee/BloombergAmerican consumers stayed in during the month of June as concerns over the U.S. economy continued.Confidence among U.S. consumers dropped more than anticipated in June, adding to concern that household spending may weaken.
The Thomson Reuters/University of Michigan final index of consumer sentiment fell to 71.5 from 74.3 in May. The gauge was projected to decline to 72, according to the median forecast of 57 economists surveyed by Bloomberg News. The index for June compares with a preliminary reading of 71.8.
Accelerating inflation, unemployment above 9% and falling property values are contributing to pessimism among consumers, overshadowing a decline in gasoline costs. The report, together with the lack of sustained strength in the job market, raises the risk restrained household demand will damp a projected pickup in economic growth.
Consumers have “things to be unhappy about,” Yelena Shulyatyeva, an economist at BNP Paribas in New York, said before the report. “Housing prices continue to decline and high unemployment limits consumer purchasing power. Economic data overall have been decisively weak since the beginning of the month.”
Estimates for the confidence measure ranged from 70.3 to 74.6, according to the Bloomberg survey. The index averaged 89 in the five years leading up to the recession that began in December 2007.
Today’s report contrasts with the Bloomberg Consumer Comfort Index, which climbed to minus 43.9 for the week ended June 26, the highest level in 10 weeks, according to figures reported yesterday.
Gasoline Prices
Changes in gasoline prices and the Bloomberg comfort index have shown an inverse correlation since 2004, according to calculations by Joseph Brusuelas, a senior economist at Bloomberg LP in New York.
The Conference Board’s monthly sentiment index, which more closely follows the labor market, plunged in June to a seven- month low, a report showed this week.
The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, rose to 82 from 81.9 the prior month.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, fell to 64.8 from 69.5.
The average price of regular fuel fell to $3.54 on June 29, according to AAA, the nation’s biggest motoring organization, from $3.99 on May 4, the highest since July 2008.
Inflation Outlook
Consumers in today’s confidence report said they expect an inflation rate of 3.8% over the next 12 months, compared with 4.1% in the prior survey.
Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 3.0% rate of inflation, compared with 2.9% the previous month.
Church & Dwight Co., the maker of household products including Arm & Hammer baking soda, is among companies concerned about the outlook for household demand.
“I’m really worried about the back half of this year as far as consumer spending power” goes, James Craigie, chairman and chief executive officer of the Princeton, New Jersey-based company, said on a conference call with investors on June 29. “Unemployment is creeping back up,” and budget constraints on state and local governments “means more job cuts.”
Jobless Claims
More Americans than forecast filed applications for unemployment benefits last week, indicating little progress in the job market, Labor Department figures showed yesterday. A separate report earlier last month showed payrolls grew in May by the least since September and the jobless rate climbed to 9.1%. The June employment data are due next week.
Federal Reserve officials have retained record monetary stimulus to help the economy withstand what they consider a “temporary” slowdown in growth.
“The economic recovery is continuing at a moderate pace, though somewhat more slowly” than policy makers expected, the Fed said in a June 22 statement. That “reflects in part factors that are likely to be temporary.”
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