Confidence among U.S. consumers declined more than forecast in July after reaching a five-year high a month earlier as Americans grew more pessimistic about the outlook for the economy and employment.
The Conference Board’s index of sentiment decreased to a reading of 80.3 from a revised 82.1 the prior month that was stronger than initially estimated, figures from the New York-based private research group showed today. The median forecast in a Bloomberg survey of economists was for a reading of 81.3.
Consumers’ views of the economy dimmed as Americans paid more at the gas pump this month than last and as higher mortgage rates threatened to slow momentum in the housing market. At the same time, increased wealth tied to higher property values and stock portfolios are helping sustain household spending.
“It reflects some of the volatility in financial markets over the last couple months, particularly the rise in interest rates,” Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn., said before the report. “To the extent that you’re paying attention and seeing rates are rising, that’s bad news if you’re looking for a mortgage or a car loan.”
Estimates for consumer confidence ranged from 77 to 85.5 in the Bloomberg survey of 75 economists. The measure averaged 53.7 during the recession that ended in June 2009.
The Conference Board’s measure of expectations for the next six months decreased to 84.7 from 91.1. The gauge of present conditions improved to 73.6 this month from 68.7 in June.
The percent of respondents expecting more jobs to become available in the next six months declined to 16.5 in July from 19.7 the previous month.
The share expecting incomes to increase fell to 15.3 this month from 15.9.
At the same time, more Americans said jobs were currently plentiful, 12.2% in July compared with 11.3% a month earlier.
Buying plans also improved with more people indicating they intended to purchase homes, cars and appliances in the next six months.
The figures follow the Thomson Reuters/University of Michigan final index of consumer sentiment which improved to the highest level in six years as Americans’ views of their finances improved.
An improved labor market has helped boost confidence levels that plunged during the biggest recession since the end of World War II. Employment climbed by 202,000 a month on average in the first six months of this year, up from 180,000 in the second half of 2012, Labor Department data show.
Federal Reserve officials in June forecast the jobless rate will fall to 6.5% to 6.8% in the fourth quarter of 2014. Unemployment in June was 7.6%.
Job gains, along with cheaper borrowing costs, are emboldening consumers to consider large purchases such as vehicles and homes. New cars and trucks sold in June at the fastest pace since 2007, according to Ward’s Automotive Group, as American drivers replaced aging vehicles.
A rebound in housing helped move trucks off dealer lots as sales of new homes rose last month to the highest level in five years, indicating stronger residential construction is spreading throughout the economy.
Improving consumer confidence is “a big factor in bringing buyers back into the housing market,” Daniel Fulton, chief executive officer of Weyerhaeuser Co., said in a July 26 conference call.
The U.S. real estate investment trust that manages 20.6 million acres of timberlands in North America is poised to grow revenue by 16% this year, analysts estimate. The lumber supplier expects both pricing and domestic log activity to pick up.
Market volatility and rising rates pose a risk to confidence. A rise in interest rates prompted Fed Chairmen Ben Bernanke and other policymakers to emphasize the central bank’s continued accommodative stance.
In June, Fed officials forecast the U.S. will grow 2.3% to 2.6% this year and 3% to 3.5% in 2014.
