U.S. Economy: Consumer Sentiment Near Worst Since ’80

Confidence among U.S. consumers approached its lowest level since 1980 this month after job losses mounted and the slide in home values deepened.

The Reuters/University of Michigan preliminary index of consumer sentiment fell for the first time in three months, to 56.2. The gauge reached a low of 55.3 in November.

The deterioration in confidence underscores the challenge President Barack Obama faces in turning around an economy that analysts see heading toward its worst year since 1946. Today’s report also indicates households will keep boosting savings as a cushion against unemployment or pay cuts.

“There is no imminent upturn in consumer spending on the horizon,” Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut, said today in a Bloomberg Television interview. “It’s going to be rough sledding for at least the next two quarters.”

Stocks fell and Treasuries slipped today. The Standard & Poor’s 500 Stock Index dropped 1 percent to 826.84 in New York. Benchmark 10-year note yields rose to 2.89 percent, from 2.78 percent.

Economists forecast the sentiment gauge would drop to 60.2, according to the median of 58 economists in a Bloomberg News survey. Projections ranged from 56.5 to 64.

Obama’s Push

Obama today called on business leaders to help build support for his stimulus package, which would cut taxes, extend unemployment benefits and expand federal spending on roads and other infrastructure.

“It’s a plan that will ignite spending by businesses and consumers, make the investments necessary for lasting economic growth and prosperity and save or create more than 3.5 million jobs over the next two years,” Obama told members of the Business Council at the White House.

Congress yesterday moved toward passage by the end of this week of a $787 billion stimulus plan.

The November reading for the University of Michigan’s index was the weakest since May 1980, when soaring inflation and unemployment, along with the Iran hostage crisis caused a national malaise.

The report’s index of consumer expectations six months from now, which more closely predicts the direction of consumer spending, fell to 49.1, the lowest since 1980, from 57.8 in January.

A measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy expensive items such as cars, rose to 67.1 from 66.5.

Retail Sales

The Commerce Department yesterday said retail sales unexpectedly halted a six-month slide in January, helped by spending on items such as clothing and food and higher prices for gasoline that boosted receipts at filling stations. Economists said the gains may not last, citing reports from other retailers and ongoing job losses.

“The January jump in retail sales could be temporary,” said Sung Won Sohn, a professor of economics and finance at California State University Channel Islands, in Camarillo, California. “The layoffs at large corporations are spreading to small- to medium-sized companies in ‘Main Street USA.’ With the surge in layoffs, even people with jobs are afraid to spend.”

Economists in a monthly survey by Bloomberg News released yesterday said consumer spending may fall at a 2.7 percent pace during the first three months of the year and 0.9 percent from April through June after declining in the last two quarters of 2008. That would be the first time on record that purchases have dropped for more than three consecutive quarters.

GDP Forecast

The economy will contract 2 percent this year and the unemployment rate will exceed 8 percent, according to the Bloomberg survey median.

The U.S. lost 598,000 jobs in January, the most in 34 years, and the unemployment rate jumped to 7.6 percent, the Labor Department said on Feb. 6. Moreover, Labor said on Feb. 12 that the number of Americans collecting jobless benefits had reached the highest on record.

Christina Romer, chairman of President Barack Obama’s Council of Economic Advisers, said in an interview yesterday that the economy may weaken further this year before showing signs of improvement in 2010.

“My hope is that by the end of the year we stop declining,” Romer said.

Reports point to further job losses. The number of Americans on unemployment-benefit rolls rose to 4.81 million in the week ended Jan. 31, the Labor Department said yesterday.

Caterpillar Inc., the world’s biggest maker of bulldozers and excavators, said this week that it is offering a voluntary retirement package to about 2,000 U.S. production employees and that more cuts may be needed this year, “depending on business conditions.”