By Courtney Schlisserman Oct. 30 (Bloomberg) -- Confidence among U.S. consumers fell in October, indicating job losses will mute household spending even as the economy grows. The Reuters/University of Michigan final index of consumer sentiment decreased to 70.6 from 73.5 in September, which was the highest in more than a year. The gauge was forecast to fall to 70, the median in a Bloomberg survey of economists. Unemployment at a 26-year high threatens to suppress consumer spirits entering the Christmas-holiday shopping period. Americans reduced spending in September for the first time in five months after the government’s auto-rebate program ended, a report earlier today showed. “Households are still worried, both about the current state of the economy as well as its future prospects,” said Steven Wood, president of Insight Economics LLC in Danville, California. “It is unlikely that sentiment will improve to optimistic levels until job creation returns and home prices stabilize.” The median forecast was based on a survey of 60 economists. Estimates ranged from 68 to 74. The preliminary reading, reported Oct. 16, was 69.4. The University of Michigan measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items such as cars and homes, rose to 73.7, the highest in a year, from 73.4 in September. Falling Expectations The index of expectations six months from now, which more closely projects the direction of consumer spending, fell to 68.6 from 73.5 in September, which was a two-year high. The economy grew at a 3.5 percent annual rate and consumer spending advanced 3.4 percent in the third quarter, according to Commerce Department estimates released yesterday. The gain in spending “largely reflected” an increase in purchases of automobiles attributable to the Obama administration’s “cash- for clunkers” plan, the report said. Stocks dropped, extending a second consecutive weekly decline, on concern consumers will retrench as government assistance wanes. The Standard & Poor’s 500 Index was down 0.9 percent to 1,056.44 at 10:35 a.m. in New York. Acceleration in Inflation Consumers in the survey said they expect an inflation rate of 2.9 percent over the next 12 months, compared with 2.2 percent in the September survey. Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expect a 2.9 percent rate of inflation, compared with 2.8 percent projected in September. Central bankers are scheduled to next meet on the direction of the benchmark overnight lending rate between banks on Nov. 3-4. Most Fed district banks saw “stabilization or modest improvements” in areas including housing and manufacturing in September and earlier this month, according to the Beige Book business survey released Oct. 21. The report cited continued “weak or mixed” labor markets. “Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered,” the Fed said last week. The final Reuters/University of Michigan consumer confidence report reflects responses from about 500 households, compared with 300 for the preliminary survey. Less Confidence An Oct. 27 report from the Conference Board showed confidence this month fell for the second straight time and Americans’ outlook on jobs diminished. The proportion of people telling the Conference Board jobs are hard to get increased to 49.6 percent, the highest level since May 1983. While initial jobless claims and the number of people on benefit rolls have continued to fall in October, companies remain reluctant to hire new staff. The U.S. has lost 7.2 million jobs since the recession began and economists surveyed by Bloomberg earlier this month projected the unemployment rate will surpass 10 percent by the beginning of next year. Burger King Holdings Inc., the second-largest U.S. hamburger seller, said yesterday that first-quarter earnings declined more than analysts had forecast as sales in the U.S. and Latin America dropped. Sales at restaurants open at least a year fell 4.6 percent in the U.S. and Canada and 4.6 percent in Latin America. “We are clearly not where we want to be as it relates to comparable sales and overall profitability,” Chief Executive Officer John Chidsey said in a regulatory filing yesterday. To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

Source