Feb. 13 (Bloomberg) -- Confidence among U.S. consumers fell in February as job losses and declining prices for stocks and homes undermined Americans’ view of their financial well-being.
The Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.2, from 61.2 in January. The drop is the first in three months and puts the index near a 28-year low of 55.3 reached in November.
The longest recession since 1982, including the loss of 3.57 million jobs, is damping Americans’ spirits, prompting them to curtail spending. Congress yesterday moved toward passage by the end of this week of a $789 billion economic stimulus plan that would cut taxes, extend unemployment benefits and expand federal spending on roads and other infrastructure.
“There is no imminent upturn in consumer spending on the horizon,” Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut, said today in a Bloomberg Television interview. “It’s going to be rough sledding for at least the next two quarters.”
Economists forecast the sentiment gauge would drop to 60.2, according to the median of 58 economists in a Bloomberg News survey. Projections ranged from 56.5 to 64.
The University of Michigan’s index of consumer expectations six months from now, which more closely predicts the direction of consumer spending, fell to 49.1, the lowest since 1980, from 57.8 in January.
Current Conditions
A measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy expensive items such as cars, rose to 67.1 from 66.5.
The Commerce Department yesterday said retail sales unexpectedly rose in January, helped by spending on items such as clothing and food and higher prices for gasoline that boosted receipts at filling stations. Economists said the gains may not last, citing reports from other retailers and ongoing job losses.
“The January jump in retail sales could be temporary,” said Sung Won Sohn, a professor of economics and finance at California State University Channel Islands, in Camarillo, California. “The layoffs at large corporations are spreading to small- to medium-sized companies in ‘Main Street USA.’ With the surge in layoffs, even people with jobs are afraid to spend.”
Job Forecasts
Economists in a monthly survey by Bloomberg News released yesterday said consumer spending may fall at a 2.7 percent pace during the first three months of the year and 0.9 percent from April through June after declining in the last two quarters of 2008. That would be the first time on record that purchases have dropped for more than three consecutive quarters.
The economy will contract 2 percent this year and the unemployment rate will exceed 8 percent, according to the Bloomberg survey median.
The U.S. lost 598,000 jobs in January, the most in 34 years, and the unemployment rate jumped to 7.6 percent, the Labor Department said on Feb. 6. Moreover, Labor said on Feb. 12 that the number of Americans collecting jobless benefits had reached the highest on record.
Christina Romer, chairman of President Barack Obama’s Council of Economic Advisers, said in an interview yesterday that the economy may weaken further this year before showing signs of improvement in 2010.
“My hope is that by the end of the year we stop declining,” Romer said.
Reports point to further job losses. The number of Americans on unemployment-benefit rolls rose to 4.81 million in the week ended Jan. 31, the Labor Department said yesterday.
Companies Struggling
Caterpillar Inc., the world’s biggest maker of bulldozers and excavators, said this week it is offering a voluntary retirement package to about 2,000 U.S. production employees and, “depending on business conditions,” more cuts may be required “as the year unfolds.” The plan announced this week is in addition to the elimination of more than 22,000 positions that the company announced last month.
Estee Lauder Cos., the maker of Clinique and Bobbi Brown cosmetics, said Feb. 5 it will cut 2,000 jobs as declines in makeup and perfume sales reduced second-quarter profit. Company executives said on a conference call they expect the slump to last through the next 12 to 18 months and economic conditions will have a “dramatic effect” on third-quarter profit.
Retailers are slashing staff as they forecast declining sales. Macy’s Inc., the second-largest U.S. department-store company, is eliminating 7,000 jobs after discounts of 60 percent failed to stem revenue declines during the worst holiday season in four decades.
Declining U.S. stocks are also a blow to Americans’ outlooks. The Standard & Poor’s 500 Index has dropped 47 percent from its 2007 record.
Consumers in today’s report projected an inflation rate of 1.6 percent over the next 12 months, compared with 2.2 percent in the January survey.
Over the next five years, Americans expected a 3 percent rate of inflation, compared with 2.9 percent forecast last month. These figures are tracked by Federal Reserve policy makers.
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