Aug. 14 (Bloomberg) -- Confidence among U.S. consumers unexpectedly fell in August as concern over jobs and wages grew.
Today’s figures, including an unchanged reading in the cost of living, underscore the damage that the biggest drop in gross domestic product in any recession since the 1930s has had on households and retailers. With little sign that $1 trillion of injections into the banking system is feeding through to inflation, Federal Reserve policy makers are forecast to sustain their efforts until a recovery is secured. Stocks tumbled.
“If consumers are lacking confidence, then they will not be able to help us spend our way out of this long, dark recession,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “Households are still concerned about the jobs outlook, and certainly, Fed policy is also gearing off of the labor markets as no Fed has lifted interest rates while the unemployment rate is rising.”
The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2 this month, the lowest since March, from 66 in July. The measure reached a three- decade low of 55.3 in November. The Labor Department said its consumer price index was unchanged from June as forecast, and dropped by 2.1 percent -- the most in six decades -- from July 2008.
Economists had forecast the confidence index would rise to 69, according to the median projection in a Bloomberg News survey. Estimates ranged from 64 to 75.
Stocks, Treasuries
The Standard & Poor’s 500 Index declined 0.9 percent to close at 1,004.09. The gauge yesterday reached the highest level since October. Treasuries rose after the consumer price report showed no sign of inflation, and benchmark 10-year note yields fell to 3.57 percent from 3.60 percent late yesterday.
The worst employment slump in seven decades has caused salaries to stagnate, rocking even Americans who still have jobs. The need to rebuild savings following the record drop in wealth from the plunge in stocks and home values will keep limiting spending in coming months, analysts said.
Retailers including Nordstrom Inc., Abercrombie & Fitch Co. and American Eagle Outfitters Inc. have used discounts to lure consumers on tight budgets.
Wal-Mart Stores Inc., the world’s largest retailer, said yesterday that sales at U.S. stores open at least a year fell 1.2 percent. Eduardo Castro-Wright, the company’s U.S. stores chief, attributed the drop to stronger than expected deflation in grocery prices.
Tame Inflation
“I don’t really see inflation as being much of a threat over the next several months because there’s just too much slack in the economy,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Florida.
The inflation report from Labor showed that excluding food and energy costs, the so-called core index rose 0.1 percent, also as anticipated.
Separate figures showed that industrial production rose for the first time in nine months in July as a federal “cash- for-clunkers” program spurred demand for cars and automakers completed mid-year overhauls of their factories. The Fed said output at manufacturers, mines and utilities increased 0.5 percent increase after a 0.4 percent drop in June.
“It’s a start of the recovery in manufacturing,” said Sal Guatieri, a senior economist at BMO Capital Markets in Toronto. “A lasting recovery in manufacturing depends on whether the pickup in auto demand can be sustained.”
Capacity utilization, the proportion of factory volume in use, rose from its lowest level since record-keeping began in 1967, increasing to 68.5 percent from a revised 68.1 percent the prior month.
Economists track plant operating rates to gauge factories’ ability to produce goods with existing resources. Lower rates reduce the risk of bottlenecks that can force prices higher.
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