Consumer confidence unexpectedly dropped in November

Consumer confidence unexpectedly declined in November to a five-month low as Americans became less upbeat about the economy and labor market.

The Conference Board's index fell to 88.7 this month from an October reading of 94.1 that was the strongest since October 2007, the New York-based private research group said today. The figure last month was weaker than the most pessimistic estimate in a Bloomberg survey of economists.

The decline this month interrupts a steady pickup in sentiment since the middle of the year and shows attitudes about the economy would benefit from faster wage growth. At the same time, further confidence will probably be underpinned as stocks rally to a record, the labor market closes in on its best year since 1999 and gas prices drop to levels unseen since November 2010.

"Confidence in general has been trending up," Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, said before the report. "The numbers have been generally moving up, consistent with an improving labor market and lowering gasoline prices."

The median forecast of 75 economists in the Bloomberg survey called for a reading of 96, with estimates ranging from 93.5 to 99 after a previously reported October index of 94.5. The Conference Board's measure averaged 96.8 during the last expansion and 53.7 during the recession that ended in June 2009.

Stocks fell after the report, with the Standard & Poor's 500 Index dropping 0.1 percent to 2,067.52 at 10:21 a.m. in New York.

The Conference Board's index of consumer expectations for the next six months decreased to 87 this month from 93.8.

The gauge of present conditions barometer dropped to a four-month low of 91.3 from 94.4. The share of Americans who said business conditions were good decreased to 24 percent, the lowest in three months.

At Odds

Today's report is at odds with other readings on sentiment. The Thomson Reuters/University of Michigan preliminary November gauge reached a seven-year high, while the weekly Bloomberg Consumer Comfort Index rose last week to the highest level since January 2008.

The Conference Board's data showed Americans' assessments of current and future labor-market conditions weakened. The share of Americans who said jobs were currently plentiful fell to 16 percent from 16.5 percent. The share that said jobs were hard to get was little changed at 29.2 percent after 29 percent in October.

A smaller number of consumers expected more jobs to become available in the next six months as the share fell to 15 percent from 16 percent.

The share of respondents in the Conference Board's survey that said they expected their incomes to rise in the next half year also decreased, to 16.3 percent this month from 16.7 percent in October.

Income Expectations

"Consumers were somewhat less positive about current business conditions and the present state of the job market; moreover, their optimism in the short-term outlook in both areas has waned," Lynn Franco, director of economic indicators at the Conference Board, said in a statement. "However, income expectations were virtually unchanged and gas prices remain low, which should help boost holiday sales."

Stronger-than-expected third-quarter sales at Best Buy Co., Williams-Sonoma Inc. and Target Corp. are fueling optimism about the holidays. Sales in November and December account for 19 percent of annual revenue for retailers, according to the National Retail Federation.

The NRF expects retail sales to rise 4.1 percent this holiday season, beating the 2.9 percent average over the last 10 years. Sales in November and December account for 19 percent of annual revenue for retailers, according to the NRF. Holiday sales rose 3.1 percent last year as stores slashed prices by the biggest amount since 2008 to drive foot traffic.

Labor Market

More Americans are finding work. Employment has climbed by at least 200,000 for nine consecutive months, Labor Department data show. The last time that's happened was a stretch that ended in March 1995. At this year's pace, the increase in payrolls for 2014 would be the biggest since 1999.

The jobless rate dropped in October to 5.8 percent, the lowest level since July 2008.

Cheaper prices at the gas pump are also giving consumers the wherewithal to spend. A gallon of regular fuel at the pump cost $2.81 on average yesterday, the lowest since November 2010, based on data from AAA, the largest U.S. motoring group.

Retailers are going a step further to encourage shoppers this holiday season. Target is offering free shipping for online orders and limited edition apparel and accessories to attract customers and differentiate itself from the Minneapolis-based company's competitors.

"As we consider the broader environment, we see some encouraging signs, including lower gas prices than we've seen in some time," John Mulligan, chief financial officer at Target, said on a Nov. 19 earnings call. "However, consumer spending patterns remain quite volatile, and we expect the competitive environment will remain highly promotional this holiday season."

--With assistance from Kristy Scheuble in Washington.

To contact the reporter on this story: Danielle Trubow in Washington at dtrubowbloomberg.net To contact the editor responsible for this story: Carlos Torres at ctorres2bloomberg.net Vince Golle, Mark Rohner