Consumer Sentiment Falls in March as Optimism Slips

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Shoppers In Harlem Ahead Of Consumer Sentiment Figures
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By Katherine Peralta

Consumer confidence declined in March to the lowest level in four months, a sign U.S. households will be slow to increase their spending.

The Thomson Reuters/University of Michigan final index of sentiment fell to 80 from 81.6 in February. The median projection in a Bloomberg survey of economists called for 80.5 after a preliminary March reading of 79.9.

Americans grew more pessimistic about the outlook for the economy as higher home-heating bills and gasoline prices strained budgets. Stronger job and wage gains would help brighten outlooks and provide a bigger push for the consumer spending that accounts from almost 70 percent of the economy.

"Right now there's a lot of uncertainty around the economy," Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn., said before the report. "The data has been a bit disappointing, but at the same time you've had the whole weather distortion story and no one really knows whether things are doing better on an underlying basis or not."

Estimates of the 63 economists in the Bloomberg survey ranged from 79.5 to 83. The index averaged 89 in the five years before December 2007, when the last recession began, and 64.2 in the 18-month contraction that followed.

The Michigan sentiment survey's index of expectations six months from now decreased to 70 from 72.7 last month. The preliminary reading was 69.4. The gauge of current conditions, which measures Americans' view of their personal finances, rose to 95.7 in March from 95.4 a month earlier. The initial figure was 96.1.

Personal Spending

Another report Friday showed consumer spending in February increased the most in three months as incomes picked up. Household purchases advanced 0.3 percent after a 0.2 percent gain, the Commerce Department said. %VIRTUAL-article-sponsoredlinks%Incomes also rose 0.3 percent.

The economy expanded at a 2.6 percent annualized rate in the fourth quarter, more than previously estimated, as consumer spending, which makes up about 70 percent the economy, rose by the most in three years. The gain reflected a bigger increase in outlays for health care.

Other recent measures of sentiment have been mixed. The Conference Board's confidence index climbed in March to the highest level in six years. The Bloomberg Consumer Comfort Index declined to the lowest level in seven weeks as all three components of the gauge declined.

Further progress in the job market may help propel consumer sentiment and encourage purchasing. Jobless claims declined by 10,000 to 311,000 last week, the fewest since late November and a sign employers may boost hiring when demand picks up, Labor Department data showed yesterday.

February Employment

Payrolls expanded by 175,000 workers in February after a 129,000 gain in the prior month, the Labor Department reported March 7. Employment is projected to climb 195,000 in March, according to the Bloomberg survey median before next week's jobs release.

Worker pay is also showing signs of picking up. Disposable income, or the money left over after taxes, rose 0.3 percent after adjusting for inflation, the most since September. It climbed 2.1 percent from February of last year, Friday's Commerce Department figures showed.

Rising incomes help explain a pickup in spending after bad weather caused some Americans to pull back. Retail sales rose in February for the first time in three months, Commerce Department data on March 13 showed.

The severe winter weather has made it difficult to detect underlying consumer trends, said Karen Hoguet, chief financial officer at Macy's (M). The department-store chain posted revenue of $9.2 billion for the quarter ended January, compared with $9.35 billion in the same period a year ago.

"We've had such up and down weather that it's a little bit harder to know what's weather, what's the consumer, what's really happening," Hoguet said on a March 25 conference call. Even so, "I don't think I would say that the consumer is overwhelmingly excited about spending."

9 Numbers That'll Tell You How the Economy's Really Doing
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Consumer Sentiment Falls in March as Optimism Slips
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.

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