Consumer sentiment in U.S. fell in November to two-year low

Consumer sentiment in the U.S. fell in November to the lowest level in almost two years as households reeled from last month’s partial government shutdown.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index for this month dropped to 72, the weakest since December 2011, from 73.2 in October. Economists in a Bloomberg survey called for an increase to 74.5, according to the median estimate.

Fiscal gridlock among lawmakers may be crimping Americans’ willingness to spend as households look to boost savings. Still, higher equities, falling gas prices and an improving job market are helping ease budgets in the weeks before the holiday retail season.

“We had a great deal of uncertainty around the federal government and whether the shutdown would have a lasting effect in terms of employment gains and the economy’s momentum,” said Robert Rosener, associate economist at Credit Agricole CIB in New York, who correctly projected the drop in sentiment. “As consumers see signs that growth is picking up, we think confidence will pick up alongside that.”

Forecasts of the 70 economists surveyed by Bloomberg ranged from 71.5 to 80. The index averaged 89 in the five years before December 2007, and 64.2 in the 18-month recession that ensued.

Another report today showed employers added more workers to payrolls in October than forecast by economists, betting that the world’s largest economy would weather the impact of the federal government shutdown.

Payroll Gain

The addition of 204,000 workers followed a revised 163,000 gain in September that was larger than initially estimated, Labor Department figures showed today in Washington. The median forecast of 91 economists surveyed by Bloomberg called for an increase of 120,000. The jobless rate rose to 7.3% from an almost five-year low.

Stocks rose, trimming the first weekly drop in a month for the Standard & Poor’s 500 Index, as the better-than-forecast jobs report added to signs growth is strong enough for the economy to withstand a stimulus reduction. The S&P 500 increased 0.4% to 1,754.23 at 10:17 a.m. in New York. The index has gained 22.5% this year through yesterday, giving a lift to personal wealth.

Consumer spending rose in the third quarter at the slowest pace since 2011, and companies invested the least in a year, the Commerce Department said yesterday in Washington.

The Michigan sentiment survey’s current conditions index, which tracks Americans’ view of their personal finances, decreased to 87.2 in November, the lowest since January, from 89.9.

The gauge of expectations six months from now fell to 62.3, the weakest in two years, from 62.5 the month before.

Inflation Expectations

Respondents anticipated an inflation rate of 3.1% over the next year, up from last month’s projection of 3%. Over the next five years, Americans expect prices to climb 2.9% compared with 2.8% in October’s survey.

Other measures of consumer confidence have also worsened recently. A report yesterday showed the Bloomberg Consumer Comfort Index reached the lowest level in more than a year as views on the buying climate and finances turned more pessimistic.

At the same time, cheaper fuel prices are taking pressure off household budgets. The average cost of a gallon of regular- grade gasoline fell to $3.21 on Nov. 7, the lowest since December 2011, according to data from AAA, the country’s biggest motoring group. Since the end of August, prices at the pump have tumbled 38 cents per gallon.

Even as balance sheets mend for some Americans, companies such as Whole Foods Markets, based in Austin, Texas, have signaled that the hit to sentiment may damage their sales.

“We are not immune to the larger macro environment,” said John P. Mackey, the grocery chain’s co-chief executive officer, in a Nov. 6 earnings call. “As several retailers are reporting, discretionary spending has been impacted as consumer confidence has dropped.”

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