Consumer Confidence Falls as Fuel Costs Increase

Consumer Confidence reports have just come in and it shows that the consumer confidence has dropped to the lowest level in over month as fuel costs rise and put stress on American household budgets. Claims for unemployment benefits were higher than expected, also dropping consumer confidence.

By Bob Willis
May 5, 2011 8:26 AM MT
BLOOMBERG

Consumer confidence dropped last week to the lowest level in more than a month as rising fuel costs squeezed American household budgets.

The Bloomberg Consumer Comfort Index decreased to minus 46.2 in the week ended May 1, the lowest level since the end of March, from minus 45.1 the prior period. Another report showed claims for unemployment benefits unexpectedly surged last week, raising the risk the improvement in the jobs market has stalled.

Stocks dropped and Treasury securities rose on concern that rising expenses, including the highest gasoline prices in almost three years, may prompt companies and households to cut back on spending. The reports bolster the arguments of Federal Reserve policy makers like Chairman Ben S. Bernanke who’ve said job growth is too slow to remove record monetary stimulus.

“There is a potential for storm clouds on the horizon,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York. “If you can’t get gasoline prices at the pump back down quickly, the economy is going to have a hard time trying to deal with it. It’s taken a lot out of consumer confidence.”

The Standard & Poor’s 500 Index dropped 0.6 percent to 1,338.68 at 11:24 a.m. in New York. The yield on the benchmark 10-year Treasury note, which moves inversely to prices, decreased to 3.18 percent from 3.22 percent late yesterday.

The number of applications for jobless benefits jumped by 43,000 to 474,000 in the week ended April 30, the most since August, Labor Department figures showed today. A spring break holiday in New York, a new emergency benefits program in Oregon and auto shutdowns caused by the disaster in Japan were the main reasons for the surge, a Labor Department spokesman said as the data were released to the press.

More Claims

While the jump last week may be an anomaly, “one must not forget that claims had drifted up even before today’s report,” Harm Bandholz, chief U.S. economist at UniCredit Group in New York, said in a report to clients. “We do not think that the entire rise in claims over the last month can be explained by special factors alone. It seems instead as if the improvement in the labor market slowed a bit.”

Employers added 185,000 workers to payrolls in April after a gain of 216,000 the prior month, according to the median forecast of economists surveyed by Bloomberg News before the Labor Department’s monthly jobs report tomorrow. The unemployment rate probably held at 8.8 percent, the survey showed.

Productivity Cools

Another Labor Department report today showed worker productivity slowed in the first quarter and labor costs rose as a growing economy prompted companies to boost employment. The measure of employee output per hour increased at a 1.6 percent annual rate, after a 2.9 percent gain in the prior three months. Expenses per employee climbed at a 1 percent rate after dropping 1 percent.

While payrolls have grown each month since October, Bernanke said on April 27 that central bankers would like to see more strength in the U.S. labor market, noting that a recovery has been “quite slow.”

“The labor market is improving gradually,” Bernanke said to reporters during the first-ever press conference following a Federal Open Market Committee meeting. “We would like to make sure that that is sustainable. The longer it goes on, the more confident we are.”

A stalling in job gains would come at a time when expenses are rising. The average price of regular gasoline at the pump reached $3.99 a gallon yesterday, the highest since July 2008, according to AAA, the country’s largest motoring group.

Young Adults, Singles

The Bloomberg Consumer Comfort Index showed young adults and single Americans were among the groups losing the most confidence over the past two weeks.

“Surging gasoline prices and a difficult labor market are likely to dampen demand and serve as an impediment to growth in the second quarter,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Lower-income groups are caught in the vise of rising fuel costs and elevated unemployment.”

The survey period for the Bloomberg gauge was prior to news that the U.S. killed al-Qaeda leader Osama bin Laden. President Barack Obama’s approval rating surged after he said the FBI’s most-wanted terrorist was killed by U.S. Navy SEALs.

Last week’s drop in the Bloomberg Consumer Comfort Index reflected deterioration in two of its three components. The buying-climate index decreased to the second-lowest level since January 2010, while Americans’ views of the economy also fell. The gauge of personal finances held near the prior week’s reading that was the lowest in two months.

Executive’s Concerns

Some company officials are concerned by rising fuel costs and the labor market even as their earnings climb. MasterCard Inc. (MA), the world’s second-biggest bank-card network, this week posted a first-quarter profit that beat analysts’ estimates as consumers stepped up spending.

“I still remain concerned about housing prices and unemployment in the United States, about food- and gas-price inflation around the world,” Chief Executive Officer Ajay Banga said in a conference call yesterday. “I remain cautiously optimistic.”

There is little sign so far that less confidence is translating into less spending. Same-store sales at retailers in April surpassed analysts’ estimates, led by Limited Brands Inc. and Macy’s Inc., a report today showed.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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