Consumer sentiment in US declines on weaker expectations

[WASHINGTON] Consumer confidence retreated in July as Americans' expectations deteriorated to an eight-month low.

While the University of Michigan said on Friday that its final index of sentiment decreased to 93.1 from 96.1 in June, the gauge has held above 90 for eight straight months, the longest such period since a 17-month stretch ended in early 2005. The median projection of economists polled called for 94 after a preliminary July reading of 93.3.

"Consumers still see the future income gains as their primary problem going forward," Richard Curtin, director of the Michigan Survey of Consumers, said on a Bloomberg conference call. "This really remains a sore point for consumers and will continue to hold down the overall rate of growth in consumption." A slump in the stock market in late July amid weakness in China also probably damped Americans' views of the domestic economy. While consumers anticipate their incomes to increase, the gains are barely keeping pace with inflation.

Across all households, a median income increase of 1.8 per cent was expected, the highest since January and up from a 0.6 per cent projection a year ago. After adjusting for changes in prices, however, just three in 10 Americans surveyed thought their chances were better than 50 per cent for real income gains over the next five years, according to the report.

The survey's gauge of consumer expectations six months from now dropped to 84.1 from 87.8 in June. The preliminary July reading was 85.2.

The gauge of current conditions decreased to 107.2 from 108.9 last month. The initial reading was 106.

Americans expected an inflation rate of 2.8 in the next 12 months, up from 2.7 per cent a month earlier, the report showed. Over the next five to 10 years, they also anticipated a 2.8 per cent rate of inflation compared with 2.6 per cent in June.

The Michigan report is in line with the other measures. The Bloomberg Consumer Comfort Index dropped last week by the most in five months as attitudes about finances and the economy deteriorated.

A gauge from the Conference Board plunged 8.9 points this month, the most since August 2011. Worker pay increases that barely exceed inflation are limiting household sentiment about their financial situations, indicating consumers may be less inclined to splurge.

Gross domestic product rose at a 2.3 per cent annualized rate in the second quarter after a revised increase of 0.6 per cent in the first three months of the year, Commerce Department data showed Thursday. Sluggish global markets, a strong dollar and insufficient wage gains may continue to limit growth. Federal Reserve officials, considering when to begin raising rates this year, concluded on Wednesday that the US is nonetheless making progress.

"These reports show growth continuing, but easing," said Russell Price, a senior economist at Ameriprise Financial Inc in Detroit, adding that a September lift-off may be too soon if global concerns continue. "To be on the cautious side, I think it's more of a December call at this time." While the job market continues to improve, wage growth remains modest.

Another report Thursday showed worker pay rose in the second quarter at the slowest pace on record. The 0.2 per cent advance was the smallest since records began in 1982 and followed a 0.7 per cent increase in the first quarter, the Labor Department said.

Employers added 223,000 jobs last month, bringing to 1.25 million the number of jobs added so far this year. The 5.3 per cent jobless rate is the lowest level in seven years.

BLOOMBERG