U.S. Consumer Confidence Probably Declined as Jobs Evaporated

U.S. Consumer Confidence Probably Declined as Jobs Evaporated


Feb. 24 (Bloomberg) -- Confidence among U.S. consumers probably dropped in February to the lowest level on record, signaling spending will slump further as unemployment climbs, economists said before a report today.

The Conference Board’s sentiment index declined to 35 this month, the lowest reading since data began in 1967, from January’s 37.7, according to the median forecast of 69 economists surveyed by Bloomberg News. Another report today may show the drop in home values accelerated in December.

Retailers such as Macy’s Inc. and J.C. Penney Co. are likely to keep hurting as soaring foreclosures and mounting job losses cause households to scrimp. President Barack Obama is trying to mend the breach in confidence with a stimulus plan that he says will save or create more than three million jobs and with funds aimed at keeping Americans in their homes.

“The primary driver is the labor market and that’s been getting worse very rapidly,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “Consumer spending is still sliding” and the economy is “getting worse very rapidly.”

The New York-based Conference Board’s report is due at 10 a.m. Estimates in the Bloomberg survey ranged from 26.7 to 42.

At 9 a.m., a report from S&P/Case-Shiller may show home prices in 20 major metropolitan areas declined 18.3 percent in the 12 months ended in December, the largest drop since records began in 2001, according to the survey median. Home values have fallen by about 25 percent on average since peaking in 2006.

Obama Plans

Obama on Feb. 17 signed into law a $787 billion recovery bill that includes tax relief, infrastructure spending and aid to distressed states aimed at creating or saving 3.5 million jobs. A day later, he unveiled a $275 billion plan to curb foreclosures and halt the slide in home prices.

Still, the real-estate slump at the center of the U.S.-led global downturn shows no sign of letting up as lenders tighten borrowing rules during the worst credit crisis in seven decades. New-home sales continue to fall and builders are cutting additional projects.

The drop in values is contributing to the decline in spending because home equity was a major source of cash for purchases of expensive items like autos during the housing and credit booms.

U.S. sales of cars and light trucks plunged to a 9.6 million annual rate in January, the lowest level since 1982, according to industry data. General Motors Corp. said this month it will cut another 47,000 workers from payrolls worldwide.

Falling Stocks

Declining stock prices are also hurting household wealth and making Americans gloomy. The Standard & Poor’s 500 Index last week posted its biggest drop in three months on concern the government will have to nationalize banks. Through Feb. 20, the index was down 6.8 percent for the month, extending its losses since last May to 45 percent.

Retailers are bracing for more bad news. Macy’s, the second- largest U.S. department-store company, this month said it was eliminating 7,000 jobs, while J.C. Penney, the third-largest, last week forecast its first quarterly loss in almost five years.

“The customer’s very tentative,” J.C. Penney’s Chief Executive Officer Myron Ullman said on a conference call with investors. “They’re buying what they need and they’re being very smart about how they spend their money.”

After contracting for the last six months of 2008, consumer spending will keep shrinking for the first six months of this year, according to economists surveyed by Bloomberg this month. It would be the first 12-month drop in the postwar era.

The recession that began in December 2007 will extend at least through the first half of 2009, with unemployment rising to 8.8 percent by year-end, according to the forecasts.

BLOOMBERG