Consumer comfort hits 10-week high on gas-price drop
Posted on July 4th, 2011
WASHINGTON – Consumer confidence rose to the highest level in 10 weeks, as falling gasoline prices provided relief to Americans contending with 9.1 percent joblessness.
The Bloomberg Consumer Comfort Index increased to minus 43.9 for the period ended June 26 after dropping to minus 44.9 the prior week. The rise in the comfort gauge last week was within the survey’s margin of error of 3 points. The measure among those with a college degree or more was the least negative in more than two years.
Retail fuel costs that have dropped 11 percent from a 2011 high of $3.99 per gallon are relieving stress on Americans’ pocketbooks. Lower prices at the pump are soothing consumers coping with a cooling labor market that’s restraining incomes and spending.
“Falling retail gasoline prices, which should free up approximately $42 billion in discretionary income, likely bolstered the outlook of consumers,” said Joseph Brusuelas, senior economist at Bloomberg LP in New York. Cheaper fuel “may provide needed support for consumer confidence at a time when sluggish demand in the labor market is clearly depressing overall sentiment.”
Slow job growth has weighed on monthly consumer confidence ratings. The Conference Board said June 28 its sentiment index dropped to a seven-month low, while the Thomson Reuters/University of Michigan preliminary index of consumer sentiment declined, according to a June 17 report.
Changes in gasoline prices and the Bloomberg comfort index have shown a strong inverse correlation since 2004, according to calculations by Brusuelas.
Jobless Claims
Another report Thursday showed the labor market is struggling to improve as more Americans than forecast filed first-time applications for unemployment benefits. Jobless claims dropped by 1,000 to 428,000 last week, the Labor Department said. Economists surveyed by Bloomberg projected 420,000 claims, according to the median estimate.
Job gains in May were the weakest since September as employers added 54,000 positions, the government said June 3.
U.S. stocks rose for a fourth day as Greece takes steps to adopt an austerity plan and avoid a default. The Standard & Poor’s 500 Index gained 0.3 percent to 1,311.92 at 9:34 a.m. in New York.
In the Bloomberg survey, all three components advanced. An index of consumers’ views of the economy increased to minus 79.2 last week from minus 80.1. The gauge of personal finances rose to minus 5.5 from minus 7.6 the prior week. The buying climate measure was little changed at minus 46.9, the best showing since January.
College Graduates
Adults between the ages of 18 to 34 grew more confident, with the index rising to minus 37.8, the highest since the week ended April 17. College graduates, with an index of minus 30.2, were the most optimistic since April 2009. Comfort levels among people 65 and older, by contrast, dropped to the lowest level since June 2010.
The overall Bloomberg consumer comfort index has averaged minus 44.7 so far this year, compared with minus 45.7 for the full year 2010 and minus 47.9 in 2009, the report showed.
The gauge hasn’t climbed above minus 40, a level associated with recessions, since late February, which “speaks to longer- term forces such as the persistently weak job and housing markets,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement.
Restraining Spending
Rising commodity prices and slow income growth are weighing on consumers’ perception of the economy and keeping them from spending, Howard Levine, chief executive officer of Family Dollar Stores Inc., said yesterday. The second-biggest dollar chain in the U.S. reported earnings for the third quarter ended May 28 that fell below analysts’ forecasts in a Bloomberg survey. The Matthews, North Carolina-based company also trimmed projections for fiscal 2011 profit.
“Today many consumers remain financially constrained,” Levine said on a conference call. “Higher prices combined with rising food costs and sluggish income growth have left many families believing that the economic recovery has yet to take hold.”
Among consumers who own their homes, confidence fell to minus 44.3, the lowest since the week ended March 20, according to today’s figures. The S&P/Case-Shiller index of property values in 20 cities dropped 4 percent in the year ended April 2011, the biggest decline in 17 months.
Renters’ Optimism
Those renting a residence became more optimistic, with an index of minus 42.2, the highest since February, Bloomberg’s gauge showed.
The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 U.S. residents age 18 and over. Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate. Results are combined with data from the previous three weeks, and the percentage of negative responses is subtracted from the share of positive views on each question, with the results then averaged.
The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative.
Field work for the index is done by Social Science Research Solutions in Media, Penn.
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