The Daily Item, Sunbury, PA

January 31, 2013

Consumer comfort decreases for 4th week

By Jeanna Smialek
Bloomberg News

WASHINGTON — Consumer comfort declined for a fourth straight week as Americans’ outlook on spending soured, a sign the payroll tax increase that kicked in at the start of the year is starting to ripple through the economy.

The Bloomberg Consumer Comfort Index dropped to minus 37.5 in the period ended Jan. 27, the lowest reading since October, from minus 36.4 in the prior week. The measure’s buying-climate gauge decreased to a four-month low.

“Falling after-tax income, a modest increase in gasoline prices and what is still a very difficult labor market” are hurting confidence, said Joe Brusuelas, a senior economist at Bloomberg LP in New York. “If it was not clear before, it should be now: A majority of Americans until now were unaware that the payroll tax would be reset.”

Waning sentiment may make it difficult to build on a pickup in household purchases that prevented an even bigger slump in growth as government outlays plunged in the fourth quarter. The attention now turns to the possibility that Congress will fail to reach agreement to avert across-the-board budget cuts that may further slow the economy.

“There is a risk that much of the improvement in consumer confidence that took place during the final quarter of 2012 could be reversed” if the budget axe falls, Brusuelas said.

The economy shrank at a 0.1 percent annual rate in the last three months of 2012 as the biggest drop in military spending in 40 years swamped gains for consumers and companies, a report showed Tuesday. Household spending, which accounts for about 70 percent of the economy, expanded at a 2.2 percent annual rate, up from 1.6 percent in the third quarter.

Claims for U.S. unemployment benefits increased more than forecast last week, nearly erasing a slide in the prior two weeks and reflecting the difficulty of adjusting the figures for swings at the start of a year.

Initial jobless claims rose 38,000 in the week ended Jan. 26, the most since Nov. 10, to 368,000, the Labor Department reported today in Washington. The increase followed a combined 45,000 drop in the prior two weeks.

Another report today showed consumer spending climbed in December as incomes grew by the most in eight years, a sign the biggest part of the economy was contributing to the expansion as the year drew to a close.

Household purchases rose 0.2 percent after a 0.4 percent gain the prior month, the Commerce Department said. Incomes rose 2.6 percent, pushing the saving rate up to a more than three- year high.

Stocks fell, following the best start to a year for the Standard & Poor’s 500 Index since 1989, on disappointing earnings.

The four-week slump in the Bloomberg Consumer Comfort Index is the longest since August.

Two of its three components declined last week. The buying climate measure fell to minus 44.4, the weakest since September, from minus 42.8.

The personal finances barometer dropped to minus 3.8 from minus 1.8 the prior week. The index assessing Americans’ views on the current state of the economy improved to minus 64.1 from minus 64.6.

Some companies indicate the drop in confidence and higher payroll taxes have yet to translate into weaker spending. Rent- a-Center Inc., the Plano, Texas-based rent-your-own merchandise store, has seen no impact, Mitchell Fadel, president and chief operating officer, said on a Tuesday call with investors.

Corning, which makes glass for flat-panel televisions, phones and tablets, also said consumer spending has held up.

“We do not feel like we’ve seen this big downdraft from the United States from the payroll tax rolling back on,” Jim Flaws, vice chairman and chief financial officer of the Corning, N.Y.-based company, said on a Monday earnings call.

Tuesday’s report showed the sentiment gauge for those making more than $100,000 a year turned negative for the first time in three months, dropping to minus 1.3 from 4.7 the week before. It also marked the first time since the end of October that confidence among all income groups was negative.

Sentiment among Americans earning $50,000 or more fell to minus 16.5, the lowest reading since October. A worker earning $50,000 is taking home about $83 less a month because of the payroll tax increase that took effect this month.

Comfort last week declined in three of the four regions, taking the measures in the Midwest, Northeast and South to the lowest levels since at least mid-November. Confidence for those living in the West climbed to an almost one-year high.

The Bloomberg Consumer Comfort Index, compiled by Langer Research Associates in New York, conducts telephone surveys with a random sample of 1,000 consumers 18 and older. Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate. The percentage of negative responses is subtracted from the share of positive views and divided by three. The most recent reading is based on the average of responses over the previous four weeks.

The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative. The margin of error for the headline reading is 3 percentage points.