Confidence among US consumers rose in September from the lowest level since November 2008 as Americans' views of current economic conditions improved.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 57.8 this month from 55.7 in August. The median estimate of economists surveyed by Bloomberg News called for a reading of 57. The group's measure of consumer expectations six months from now dropped to the lowest level since May 1980.
A lack of job and income growth, higher costs and a volatile stock market help explain why retailers like Best Buy Co are struggling to drum up sales. These headwinds for consumer spending, which accounts for 70 per cent of the economy, raise the risk the recovery will falter and put pressure on President Barack Obama, lawmakers and the Federal Reserve to consider more measures aimed at boosting growth.
"The freefall is over," said Jim O'Sullivan, chief economist at MF Global Inc. in New York, who projected the sentiment gauge would climb to 58. "Consumer spending looks pretty sluggish, but it's not seeing the recession-like weakness shown by the confidence numbers."
Estimates of the 67 economists surveyed by Bloomberg for the confidence measure ranged from 52 to 60. The index averaged 89 in the five years leading up to the recession that began in December 2007 and ended in June 2009.
Stocks gained for a fifth day, the longest rally since July for the Standard & Poor's 500 Index, amid optimism European leaders will make progress controlling the region's debt crisis. The S&P 500 climbed 0.6 per cent to 1,216.01 at the 4 p.m. close in New York.
BLOOMBERG MEASURE
Saturday's confidence figures compare with the Bloomberg Consumer Comfort Index, which held last week at its second- lowest level this year.
The Bloomberg gauge of sentiment was minus 49.3 in the week to September 11. The figure is close to the minus 54 in January 2009, which matched the worst reading in the history of the series dating back to 1985.
The Michigan survey's index of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, increased to 74.5 from 68.7 the prior month.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 47 from 47.4.
'VALUE CONSCIOUS'
"Customers are even more value conscious when they shop, are buying smaller baskets and are selecting some lower cost items," said W. Rodney McMullen, chief operating officer at Kroger Co, the biggest US grocery chain.
Speaking on a September 9 conference call with analysts, he said, "last quarter, we were beginning to read the shift in consumer sentiment which translated into more obvious behavior changes this quarter."
Americans are also facing gasoline prices that haven't shown signs of declining. Fuel costs this month through yesterday averaged $3.65 a gallon, compared with $3.62 in August, according to AAA, the nation's biggest motoring organisation.
Consumers in Saturday's confidence report said they expect an inflation rate of 3.7 per cent over the next 12 months, compared with 3.5 per cent in the prior survey.
INFLATION EXPECTATIONS
Over the next five years, the figures tracked by Fed policy makers, Americans expect a three per cent rate of inflation, after 2.9 per cent last month.
Some 60 per cent of those surveyed in the Michigan report said they anticipate their incomes to fall in the coming year after adjusting for inflation, the worst reading in the measure's history.
For the year ahead, 17 per cent said they expect their finances to improve, the lowest share ever recorded. About 75 per cent of consumers said they anticipate "bad times" in the economy in the coming year, up from about 50 per cent in the January survey.
Fed Chairman Ben S Bernanke last week said policy makers will discuss the tools they could use to boost the recovery at their meeting September 20-21 and stand ready to use them if necessary.
Obama announced a jobs plan before a joint session of Congress on September 8, calling for an extension of a payroll-tax break for Americans and unemployment assistance.
OBAMA PLAN
He also pushed for a payroll tax break for small businesses, an increase in infrastructure spending and more aid for cash-strapped state governments.
Best Buy, the world's largest consumer-electronics retailer, this week cut its full-year earnings forecast. The Richfield, Minnesota-based chain also reported a 30 per cent decline in second-quarter profit.
"The consumer is making very measured choices," Chief Executive Officer Brian Dunn said in a September 13 telephone interview. "I don't think it's a year where someone is going to buy a TV and a tablet and a new smartphone and go to Disneyland."
United Parcel Service Inc, the package-delivery company whose shipments make it an economic bellwether, said yesterday that slower growth may persist into 2013.
UPS expects 1 year to 1.5 years of "subpar growth" in the economy, Chief Financial Officer Kurt Kuehn said on Saturday at an investor conference in Louisville, Kentucky. While no improvement is in sight now, the economy is "not getting worse," he said.
