quote of the year

“Uncertainty is becoming the new normal”

Consumer Confidence Index

By Jeanna Smialek -Jan 18, 2013

Consumer confidence in the U.S. unexpectedly fell in January to a one-year low as higher payroll taxes began to take hold.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment dropped to 71.3, the lowest since December 2011, from 72.9 the prior month. The gauge was projected to rise to 75, according to the median forecast of 74 economists surveyed by Bloomberg News.

Less take-home pay this year after an increase in taxes used to fund Social Security is a hurdle for a pickup spending, as discounters such as Target Corp. (TGT) try to attract shoppers with year-round price matching. At the same time, job gains, rising home values and cheaper fuel may help sustain retail sales.

“Uncertainty is becoming the new normal,” Kurt Rankin, an economist at PNC Financial Services Group in Pittsburgh, said before the report.“Consumer confidence is still depressed.”

Estimates for the confidence measure ranged from 70 to 84, according to the Bloomberg survey. The index averaged 64.2 during the last recession and 89 in the five years leading up to the economic slump that began in December 2007 and ended in June 2009.

The figures are in line with Bloomberg’s Consumer Comfort Index, which dropped last week to a three-month low, reflecting a fourth straight decline in the buying-climate gauge.

The Michigan index of expectations six months from now, which more closely projects the direction of consumer spending, dropped to 62.7, the lowest since November 2011, from 63.8 the prior month.

Current Conditions

The measure 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 a six-month low of 84.8, from 87 in December.

While Americans took comfort in resolution of the so-called fiscal cliff, in which lawmakers averted income-tax increases on 99 percent of households, payroll taxes went up. As part of its budget agreement on Jan. 1, Congress agreed to let the tax, used to pay for Social Security benefits, return to its 2010 level of 6.2 percent from 4.2 percent. That reduces the paycheck by about $83 a month for someone who earns $50,000.

“Things like increases in payroll taxes are not a positive from my perspective,”Howard Levine, chief executive officer atFamily Dollar Stores Inc. (FDO), the second-largest U.S. dollar-store chain, said on a Jan. 3 earnings call. “What I think happens is there will be some further impact to our core customer as a result of some of these tax increases. But I also think we’re positioned very nicely for a trade-down customer.”

Retailer Discounting

Target, the second-largest U.S. discount retailer, said earlier this month that it plans to match the prices year-round charged by e-commerce sites of Amazon.com Inc., Wal-Mart Stores Inc., Best Buy Co. and Toys “R” Us Inc. in a bid to boost sales.

The new policy combines Target’s holiday-season price policies into one year-round and easy-to-use system, the Minneapolis-based company said in a statement. Target’s stores will also match the prices of goods found on its own website, it said.

Still, consumers have benefited from rising home values and cheaper fuel prices. A gallon of regular gasoline at the pump averaged $3.29 nationally yesterday, down from a recent high of $3.87 in September, according to AAA, the biggest U.S. motoring group.

Debt Ceiling

Further debate over government spending and raising the debt ceiling may restrain optimism.

Automobile sales, meantime, have been a bright spot as consumers take advantage of cheaper borrowing costs. Motor vehicle purchases are expected to grow in 2013 by 3 percent, Jim Lentz, U.S. sales chief for Tokyo-based Toyota Motor Corp. (7203), said at an industry conference this week.

“The U.S. economy is expected to continue to improve,” Lentz said. “Consumers appear to be more upbeat about the business and labor conditions.”

Consumers expect an inflation rate of 3.4 percent over the next 12 months, compared with 3.2 percent in the prior survey, today’s report showed. Over the next five years, Americans expect a 2.9 percent rate of inflation, the same as in the previous report.

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net
To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net