U.S. consumer confidence falls to five-month low

BLOOMBERG — Confidence among U.S. consumers dropped in June for a fourth consecutive month as mounting concern over jobs and incomes dimmed the outlook for spending.

The Conference Board’s sentiment index fell to 62, a five- month low, from a revised 64.4 in May, according to figures released Tuesday (June 26) from the New York-based private research group. Another report showed home prices were stabilizing.

The slide in confidence raises the risk that the slowdown in hiring revealed by last month’s jobs report will cause households to retrench, restraining the spending that accounts for about 70% of the economy. The weak labor market is overshadowing the benefit of the lowest gasoline prices in five months, one reason why companies like Ford Motor Co. are keeping an eye on attitudes.

“The employment situation continues to weigh on consumer minds,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who correctly forecast the confidence index. “Usually consumers react to falling gasoline prices by increasing their spending, but this time around it looks like they’re a little bit cautious.”

The median forecast of 69 economists surveyed by Bloomberg News projected the U.S. confidence index would fall to 63. Estimates ranged from 58 to 66.8. The measure averaged 53.7 during the 18-month recession that ended in June 2009.

HOME PRICES
An improvement in residential real estate may help limit the decline in sentiment. Home prices in 20 cities fell at a slower pace in the 12 months ended in April, showing the industry that precipitated the last recession is stabilizing, other data showed. The S&P/Case-Shiller index of property values dropped 1.9% from a year earlier, the smallest decrease since November 2010, the group reported in New York.

Home prices adjusted for seasonal variations climbed 0.7% in April, matching the prior month’s gain, which was revised up from a previously reported 0.1% increase. It was the best back-to-back performance since mid-2009.

“Housing has picked up,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York, who correctly forecast the monthly jump in prices. “Sales have improved and the inventory of homes for sale has been falling, which has brought a bit more balance into the market and fed into a bit of stabilization.”

The Conference Board’s confidence gauge reflected growing concern about the short-term outlook. The gauge of expectations for the next six months fell to 72.3, the lowest level since November, from 77.3 a month earlier. The measure of present conditions climbed to 46.6 from 44.9 in May.

That mimics the results of the latest Bloomberg Consumer Comfort Index issued last week, which showed the fewest Americans in five months said the economy was improving in June. The Thomson Reuters/University of Michigan’s preliminary sentiment measure fell this month to the lowest level this year.

“We’ve seen consumer confidence come off its highs,” Mark Fields, president of the Americas for Ford, told reporters today in Dearborn, Mich. “We’ll continue to monitor the marketplace and take decisive action no matter where the economy goes.” Fields said Ford is having “solid” June sales even as the economy shows mixed signals.

Darden Restaurants Inc., owner of the Red Lobster, Olive Garden and LongHorn Steakhouse restaurant chains, last week reported fourth-quarter revenue that trailed analysts’ estimates because of an unexpected drop in sales at its older establishments. The company said things took a turn for the worse last month.

‘MORE CAUTIOUS’
“We saw the consumer get a lot more cautious in May,” Clarence Otis, chairman and chief executive officer at Darden, said on a June 22 conference call with analysts. “And that was not just at Red Lobster, but across the restaurant industry and really, as we look out at the data that we get, generally across the overall consumer environment beyond restaurants.”

The share of respondents in the Conference Board’s survey that expected more jobs to become available in the next six months declined to 14.1, the lowest this year, from 15.4 the previous month. The proportion projecting an increase in incomes dropped to 14.8% from 15.7%.

“If this trend continues, spending may be restrained in the short term,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement.

Buying plans were mixed in June, with the share of households planning to buy autos unchanged from a month earlier, while fewer Americans said they intended to purchase major appliances. More consumers indicated they planned to buy a house in the next six months as lower mortgage rates make properties more affordable.

Employment growth and wage gains have been cooling. Payrolls climbed by 69,000 in May, the smallest increase in a year, Labor Department figures showed June 1. Average hourly earnings increased 1.7% in the 12 months ended in May, the smallest increase since December 2010.

The jobless rate last month rose to 8.2% from April’s 8.1%. It has held above 8% for 40 consecutive months, the longest stretch of such elevated levels in the post-World War II era.

FED ACTION
To help combat weaker economic growth, Federal Reserve officials last week said they’ll expand Operation Twist, a program to replace short-term bonds with longer-term debt, by $267 billion through the end of 2012.

Policy makers also cut their expectations for growth in 2012 to a range of 1.9% to 2.4%, down from an April prediction of 2.4% to 2.9%. The forecasts have been lowered in five of the six economic projections since January 2011, when most central bankers predicted the economy would grow 3.5% to 4.4% in 2012.

One of the bright spots for the consumer has been falling gasoline prices. The price of a gallon of gas has declined 54 cents since reaching a high of $3.94 in April, according to AAA, the nation’s biggest auto group.