By Alex Kowalski
Consumer confidence in the U.S. rose for the first time in five weeks as Americans said their finances were in better shape.
The Bloomberg Consumer Comfort Index improved to minus 46.9 in the period ended March 27 from a seven-month low of minus 48.9 the prior week. Readings this low are historically seen during recessions, according to Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg.
A strengthening job market may help consumers overcome strains from the highest gasoline prices in more than two years and rising grocery bills. At the same time, sentiment soured for a fourth consecutive week among those making more than $100,000 a year, indicating continued drops in home values and swings in stock prices are rattling wealthier households.
“It’s a mixed bag out there,” said George Mokrzan, senior economist at Huntington National Bank in Columbus, Ohio, “The income rises and job growth are the major drivers at this point, so in general the consumer can withstand some higher prices.”
Another report today showed business activity expanded at a faster pace than forecast in March, signaling manufacturing remains a driver of growth in the world’s largest economy. The Institute for Supply Management-Chicago Inc. said its business barometer fell to 70.6 this month from February’s 71.2 reading that was the highest since July 1988.
2010 Average
The Bloomberg Comfort Index, with records dating back to December 1985, fell to a record low of minus 54 in November 2008, while the peak of 38 was reached in January 2000. Readings averaged minus 45.7 last year.
Last week’s results reflected gains for two of the three components.
The measure of personal finances rose to minus 1.1 from minus 5.5, the report showed. Fifty percent of those polled held positive views on their financial situation, up from 47 percent the previous week. Last week was the second time the share has been at 50 percent or higher since January 2010.
The buying-climate index increased to minus 53.1 from minus 55.1. Those saying it was a good time to buy needed items held at 23 percent.
Consumers’ views on the economy turned more grim as that component fell to minus 86.5 last week, the lowest level since April 2009, from minus 86 the prior week. The share of households with a positive view of the economy held at 7 percent.
Gasoline’s Influence
“With gasoline prices continuing to surge, public ratings of economic conditions remain well below the levels typically associated with growth,” Langer said in a statement. “Consumers may be questioning the recovery’s strength and durability alike.”
As home values recede toward the lowest levels since the last expansion began at the end of 2001, the drop in wealth may cause consumer spending, which accounts for 70 percent of the economy, to cool.
Residential real estate prices dropped in the 12 months ended January by the most in more than a year. The S&P/Case- Shiller index of property values in 20 cities fell 3.1 percent from January 2010, the group said this week. Eighteen of the 20 cities in the index showed a year-over-year decline, and prices in 11 markets dropped to fresh lows from their 2006, 2007 peaks, the same as in December.
Share Prices
Swings in the stock market may also weigh on the outlooks of those earning more than $100,000 a year in income. The Standard & Poor’s 500 Index fell 6.4 percent from Feb. 18 to March 16 and has since climbed 5.7 percent to close yesterday in New York at 1,328.26.
The comfort reading for those making $100,000 dropped to minus 14 last week, the lowest level since October, from minus 13.8.
Today’s report showed the strengthening labor market is doing little to lift the moods of those with jobs. The confidence index for Americans working full time fell to minus 39.8 last week, the lowest level since August, from 38.4, while it increased for those who were unemployed.
A report from the Labor Department today showed the number of Americans applying for unemployment insurance fell by 6,000 to 388,000 in the week ended March 26. The number of people continuing to receive benefits dropped to the lowest level since October 2008.
More Jobs
Economists project a Labor Department report tomorrow will show employers added 190,000 workers to payrolls in March and the jobless rate held at 8.9 percent.
While the labor market improves and incomes gain, Americans are paying more for staples, and costs may climb further in the next few months. The average price of regular gasoline at the pump was $3.61 a gallon on March 29, the highest since September 2008, according to AAA, the nation’s biggest motoring organization.
Price increases have not yet offset demand for consumer goods. Same-store sales at Macy’s Inc., the second-largest U.S. department to chain, rose 5.8 percent in February, compared with the 3.7 percent average gain from analysts’ estimates compiled by Retail Metrics Inc.
Still, retailers are watching how inflation affects sales, according to Terry Lundgren, Macy’s chairman, president and chief executive officer.
Inflation Pressures
“There’s just no question about it, and there’s no way around” inflation pressures, Lundgren said during a March 29 conference call with analysts. “If we get by 2 percent or 3 percent inflation, it’s not a bad thing. As long as the product has demand to it, the price impact so far has not been negative.”
The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 consumers aged 18 and over. Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate; the percentage of negative responses is subtracted from the share of positive views and divided by three. The most recent reading is based on the average of responses over the previous four weeks.
