Consumer sentiment in U.S. increases more than forecast

Confidence among U.S. consumers rose in September from the lowest level since November 2008 as pessimism about the economy eased.

The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 59.4 this month, higher than forecast, from 55.7 in August. The median estimate of economists surveyed by Bloomberg News was 57.8, the same as the preliminary reading for September. The group's measure of consumer expectations six months from now also rose.

While some concerns that soured Americans' moods last month may have eased, consumers have few incentives to increase their spending, which accounts for 70 percent of the economy. The lack of hiring and stock market volatility add to concern the U.S. is facing “significant” risks, one reason why Federal Reserve policy makers took another step this month to revive growth.

“The aggravation many people felt about the political games and finger-pointing in Washington, D.C., over the debt ceiling is starting to wear off,” Chris Christopher, an economist at IHS Global Insight in Lexington, Massachusetts, said before the report. At the same time, “consumer confidence and spending are in the doldrums.”

Estimates of the 63 economists surveyed by Bloomberg for the confidence measure ranged from 56 to 59. The index averaged 89 in the five years leading up to the recession that began in December 2007 and ended in June 2009.

Stocks declined on concerns about the global economy. The Standard & Poor's 500 Index dropped 1.3 percent to 1,145.85 at 10:15 a.m. in New York.

Today's figures compare with the Bloomberg Consumer Comfort Index, which slumped last week to the second-lowest level in records dating back to 1985, as Americans grew more concerned with their financial situation and the buying climate worsened.

The Commerce Department today said personal spending slowed in August and incomes declined for the first time in almost two years. Household purchases climbed 0.2 percent after a 0.7 percent July increase. Incomes dropped 0.1 percent after a revised 0.1 percent gain that was smaller than first estimated.

Business activity in the U.S. unexpectedly picked up in September, indicating executives may be betting the economy will weather the recent slump in stock prices and confidence.

Chicago Purchasers

The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 60.4 this month from 56.5 in August. A level of 50 is the dividing line between expansion and contraction. Economists forecast the gauge would drop to 55, according to the median estimate in a Bloomberg survey.

Among other gauges of confidence, the Conference Board's sentiment index was little changed at 45.4 in September from a revised 45.2 reading in August that was the lowest since April 2009, when the economy was in a recession.

Today's Michigan survey report showed the index of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy big- ticket items like cars, increased to 74.9 from 68.7 in August. The preliminary reading was 74.5.

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, rose to 49.4 this month from 47.4 in August.

Gas Prices

Households are finding little relief at the gas pump. A gallon of regular gasoline cost an average $3.60 this month through yesterday, compared with $3.62 in August, according to AAA, the nation's biggest motoring organization.

Consumers in today's confidence report said they expect an inflation rate of 3.3 percent over the next 12 months, the lowest reading this year and down from 3.5 percent in the prior survey.

Over the next five years, the figures tracked by Fed policy makers, Americans expect a 2.9 percent rate of inflation, the same as the last two months.

McCormick & Co., a Sparks, Maryland-based spice seller, is “being challenged by a difficult economy, a weaker consumer, and escalating material costs,” according to Chairman and Chief Executive Officer Alan Wilson. Some customers are shifting to buying cheaper store brands, he said.

“Many consumers are struggling in this economy,” Wilson said on a conference call with analysts on Sept. 28. “They're making tough choices, and some are altering their shopping patterns.”

President Barack Obama this month announced a jobs plan to jumpstart a stalled labor market. He proposed an extension of a payroll-tax break for workers and of unemployment assistance, a payroll tax break for small businesses, more infrastructure spending and higher aid for cash-strapped state governments.

Fed officials on Sept. 21 announced a plan under which the central bank will replace $400 billion of short-term debt in its portfolio with longer-term Treasuries maturing in six to 30 years, aiming to reduce borrowing costs and spur growth.