Credit Commentary

Consumer sentiment takes a tumble in November

By Zarana on Friday, November 13 2009

Confidence among U.S. consumers unexpectedly dropped in November as the loss of jobs threatened to undermine the biggest part of the economy. The Reuters/University of Michigan preliminary sentiment index decreased to a three-month low of 66 from 70.6 in October.

Rising joblessness puts the economy at risk of slipping into a vicious circle of firings and declines in consumer spending that will limit the emerging recovery. Consumers face a lot of headwinds, and rising unemployment is the big worry.

In the U.S., rising unemployment threatens consumer spending, which accounts for two-thirds of the economy. The jobless rate jumped to 10.2% in Oct'09, a 26-year high and is projected to remain above 10% through the first half of next year.

While the US economy is beginning to show signs of recovery, it still has a long way to go before the job market improves and with it, a rosier consumer sentiment. Joblessness may also weigh on Americans as they head into the holiday shopping season. Macy’s Inc. is among retailers showing a decline in sales as consumers spend only on essentials such as food and clothing.

The Reuters/University of Michigan gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big- ticket items like cars, decreased to 69.6 from 73.7.

Consumer Outlook

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, dropped to 63.7 from 68.6.The sentiment index was forecast to rise to 71, according to the median of 69. Estimates ranged from 67.5 to 75. During the expansion that began in late 2001 and ended in December 2007, the index averaged 89.2.

The preliminary Reuters/University of Michigan consumer confidence report reflects about 300 responses, compared with 500 households for the final survey.

Macy’s, the second-biggest U.S. department-store chain, is among retailers that are more cautious as consumers hold back on discretionary purchases. The Cincinnati-based chain reported a third-quarter loss as sales fell.