American consumer confidence unexpectedly declined in August to a nine-month low, repressed by gloomy wage perceptions.
The Thomson Reuters/University of Michigan preliminary sentiment index dropped to 79.2, the lowest since November, from 81.8 in July, according to data issued today. It was lower than any economist surveyed by Bloomberg projected and represented the biggest negative surprise in a decade.
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The retreat in confidence was paced by mounting concern about the economic outlook as households said earnings would probably not climb as fast as prices. That bolsters Federal Reserve Chair Janet Yellen's argument that there remain pockets of labor-market weakness that require the central bank to maintain monetary stimulus into 2015.
"The median household doesn't think it will be able to beat inflation over the next year," said Dana Saporta, director of U.S. economic research at Credit Suisse in New York, who projected sentiment would drop. "Chair Yellen specifically cited pessimism over household income as one of the headwinds that's impacting the U.S. economy right now, and these figures would seem to underscore her point."
Another report today showed factory production increased in July at the fastest pace in five months as capital spending climbed and motor vehicle demand surged, indicating manufacturing is helping propel the U.S. economy.
The 1 percent gain at manufacturers followed a 0.3 percent increase in the prior month that was more than initially estimated, figures from the Federal Reserve in Washington showed today. Total industrial production, which also includes mines and utilities, advanced 0.4 percent for a second month in July.
Stocks fell, trimming a weekly gain for the Standard & Poor's 500 Index, after escalating tensions in Ukraine boosted demand for haven assets. The Standard & Poor's 500 Index dropped 0.5 percent to 1,946.33 at 11:52 a.m. in New York.
The median projection in a Bloomberg survey of 63 economists called for an 82.5 reading. Estimates ranged from 80 to 85. The index averaged 89 in the five years before December 2007, at the beginning of the last economic slump, and 64.2 during the recession.
The median forecast hadn't overestimated the confidence reading by this much since May 2004.
The Michigan sentiment survey's measure of expectations six months from now decreased to 66.2, the lowest since October, from 71.8 the prior month. The current conditions index, which measures Americans' assessment of their personal finances, rose to 99.6 this month, the highest since July 2007, from 97.4.
While Americans expected an inflation rate of 3.4 percent over the next year, they projected incomes would rise 0.4 percent over the same period, according to Saporta.
"There's real pessimism about the extent to which consumers will achieve wage gains," she said.
Recent figures show greater employment opportunities haven't translated into the income levels needed to invigorate American consumer spending. A Commerce Department report this week showed retail sales were muted in July, the weakest performance in six months, after a 0.2 percent advance in June. Gains in sales of clothing, groceries and personal-care goods were offset by declines at department, electronics and furniture stores.
Wal-Mart Stores Inc., the world's largest retailer, reported stagnant same-store sales in the second quarter and cut its earnings forecast for the year, as foot traffic in its supercenters slowed.
"Stronger sales in the U.S. businesses would have helped our profit performance in the quarter," Doug McMillon, the company's chief executive officer said on an Aug. 14 earnings call.
The retailer hasn't posted a same-store sales gain for six quarters, and customers are making fewer trips to big-box retailers. Cuts in government assistance also are leaving low- income shoppers with less money to spend.
"The global economy remains challenged, which means the customers also stretched," added David Cheesewright, who heads Wal-Mart International. "Price remains a critical factor in our customers buying decisions," he said on the call.
Inflation-adjusted average weekly earnings dropped 0.2 percent in the 12 months through June, the worst performance since October 2012, according to Labor Department data.
Yellen is among policy makers concerned that slack in the job market, including stagnant wages and elevated long-term unemployment continue to suppress the world's largest economy.
Some recent data illustrate an improving job market. Payrolls rose by 209,000 workers in July, while job openings rose in June to the highest level in more than 13 years, according to Labor Department data.
Many of those gains were in part-time and low-wage jobs, and a "strengthening" jobs picture still shows long-term joblessness at "exceptionally high levels," Yellen told lawmakers July 15, deeming labor market progress uneven.