By Courtney Schlisserman Aug. 14 (Bloomberg) -- Confidence among U.S. consumers unexpectedly fell in August for a second consecutive month as concern over jobs and wages grew. The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.2, the lowest level since March, from 66 in July. The measure reached a three-decade low of 55.3 in November. 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. “The consumer’s not off to a good start in the third quarter,” Jonathan Basile, an economist at Credit Suisse in New York, said before the report. “The concerns they’ve had because of jobs and income are still lingering and showing in their lack of spending.” Economists forecast the confidence index would rise to 69, according to the median of 61 projections in a Bloomberg News survey. Estimates ranged from 64 to 75. A report from the Labor Department today showed the cost of living in the U.S. was unchanged in July, and dropped by the most since 1950 from a year ago, as the recession sapped companies’ pricing power. Excluding food and energy costs, the so-called core index rose 0.1 percent, also as anticipated. More Production A report from the Fed showed industrial production rose 0.5 percent in July, the first increase in nine months, after mid- year retooling at automakers and as the federal “cash-for- clunkers” program spurred demand for cars. A 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 and homes, dropped to 64.9 from 70.5. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, fell to 62.1 from 63.2. A government program offering $4,500 to trade in gas- guzzlers for more fuel-efficient automobiles helped boost vehicle sales in July and was so popular it ran out of its original funding months ahead of schedule. President Barack Obama last week signed into law an emergency measure giving an additional $2 billion to the so-called cash-for-clunker’s plan, after the initial $1 billion ran out. Sales Drop A report yesterday indicated that consumers remain reluctant to spend without such incentives. Sales at retailers fell 0.1 percent in July, the first drop in three months, the Commerce Department said. Purchases excluding automobiles dropped 0.6 percent, the worst performance since March. Consumer spending, which accounts for 70 percent of the economy, is projected to grow at an average 1.6 percent pace through the first half of 2010, ending its worst slump since 1980, according to the median estimate of economists surveyed this month by Bloomberg News. Purchases rose at an average 3.5 percent pace in the decade before the current recession began in December 2007. Federal Reserve policy makers on Aug. 12 said they will hold the benchmark interest rate “exceptionally low” for an “extended period” to help sustain a recovery. They also added “sluggish income growth” to the list of reasons why household spending is likely to be slow to rebound. Less Inflation Consumers in the confidence survey said they expect an inflation rate of 2.8 percent over the next 12 months, compared with 2.9 percent in the prior month’s survey. During the coming five-year period, Americans expected a 2.9 percent rate of inflation, compared with their expectation of 3 percent forecast last month. The figures are tracked by Fed policy makers. Wal-Mart Stores Inc., the world’s largest retailer, yesterday reported profit that exceeded some analysts’ estimates after managing inventory to lower costs. Comparable-store sales trailed the company’s forecast. The drop in sales was attributable to consumers being “more selective” in buying discretionary items and to larger declines in grocery prices than anticipated, Eduardo Castro- Wright, Walmart’s U.S. stores chief, said on a recorded call. The preliminary Reuters/University of Michigan consumer confidence report reflects about 300 responses, compared with 500 households for the final survey. Job Cuts Recent reports have shown the deterioration in the labor market is starting to slow. U.S. payrolls fell by 247,000 last month, less than forecast, and the unemployment rate dropped for the first time in more than a year. Some retailers are projecting better times ahead. Sales at Urban Outfitters Inc. rose 0.1 percent in the second quarter ended July 31. “We do not believe that the country will be returning to 2007 consumer-spending levels anytime soon,” Chief Executive Officer Glen Senk said on a conference call yesterday. “But we feel the environment reflects a degree of heightened stability, and we are confident that there is abundant opportunity for growth.” To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

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