Consumer Confidence in U.S. Unexpectedly Decreases

Oct. 27 (Bloomberg) -- Confidence among U.S. consumers unexpectedly fell in October for a second month as Americans fretted about a lack of jobs.

The Conference Board’s confidence index dropped to 47.7 from a revised 53.4 in September, a report from the New York- based private research group showed today. A measure of employment availability deteriorated to a 26-year low.

Mounting unemployment threatens to restrain consumer spending entering the Christmas-holiday shopping season. Without a sustained rebound in the biggest part of the economy, the emerging recovery may fall short of expectations.

“There really isn’t any scope for us to see sustained gains in consumer spending for quite some time,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc., a New York forecasting firm. “The labor market remains very weak.”

Stocks dropped after the report, erasing earlier gains, on concern consumers will cut back. The Standard & Poor’s 500 Index was down 0.2 percent to 1,065.05 at 10:21 a.m. in New York. Treasury securities rallied, pushing the yield on the 10-year note down to 3.52 percent from 3.56 percent late yesterday.

Economists forecast confidence would increase to 53.5 from a previously reported 53.1 for September, according to the median of 74 projections in a Bloomberg News survey. Estimates ranged from 48 to 57.

Home Prices Firm

An earlier report today showed home prices in 20 U.S. cities rose in August for a third straight month. The S&P/Case- Shiller home-price index climbed 1 percent from the prior month on a seasonally adjusted basis, after a 1.2 percent increase in July. Compared with a year earlier, prices were down 11.3 percent, less than the median forecast of economists surveyed.

The Conference Board’s measure of present conditions dropped to 20.7, the lowest level since February 1983. The gauge of expectations for the next six months decreased to 65.7 from 73.7.

The share of consumers who said jobs are plentiful dropped to 3.4 percent from 3.6 percent. The proportion of people who said jobs are hard to get increased to 49.6 percent, the highest level since May 1983, from 47 percent.

The proportion of people who expect their incomes to rise over the next six months decreased to 10.3 percent from 11.2 percent. The share expecting more jobs fell to 16.3 percent from 18 percent.

Less Spending

Consumers “remain quite pessimistic about their future earnings, a sentiment that will likely constrain spending during the holidays,” Lynn Franco, director of the Conference Board Consumer Research Center, said in a statement.

Government reports have shown that while companies are slowing the pace of firing they are reluctant to hire. The U.S. has lost 7.2 million jobs since the recession began in December 2007.

Caterpillar Inc. said Oct. 26 it has started rehiring and expects to return a portion of its laid-off employees to jobs as demand increases in the coming months. Even so, while 550 U.S. employees have returned or will return to work before the end of next year, about 2,500 idled U.S. workers are being told they won’t get their jobs back and will be offered a separation package.

“It’s important to remember that we are not close to the record-breaking demand we experienced from 2004 through 2008,” Chief Executive Officer Jim Owens said in a statement.

Buying Plans

Buying plans for automobiles, homes and major appliances within the next six months all decreased this month, today’s report showed.

Today’s report mimics a decline seen in the Reuters/University of Michigan preliminary index of consumer sentiment issued earlier this month.

Economists say the Conference Board’s index tends to be more influenced by attitudes about the labor market.

Consumer spending probably increased at a 3 percent pace in the third quarter, according to the median projection of economists ahead of the gross domestic product report due in two days. Demand will ease to a 1 percent growth rate the final three months this year and then may accelerate to a 1.5 percent rate in the first quarter, according to median forecasts in a Bloomberg News survey earlier in October.

J.C. Penney Chief Executive Officer Myron Ullman told analysts Oct. 23 while the consumer is “still under enormous pressure,” the company is “starting to see some stabilization and some modest improvement in traffic.”

Fed Regions

Most Federal Reserve district banks saw “stabilization or modest improvements” in areas including housing and manufacturing in September and earlier this month, according to the Beige Book business survey released Oct. 21. The report was issued two weeks before the central bank’s next monetary policy meeting and cited continued “weak or mixed” labor markets.

“Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered,” the Fed said last week.