Wednesday, January 30, 2013

Cinsumers lose confidence in January

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Consumer confidence drops in January

Economic Report

January 29, 2013|Ruth Mantell, MarketWatch
WASHINGTON (MarketWatch) — Dropping past analysts’ expectations, a gauge of consumer confidence fell this month to its lowest level in more than a year, led by gloomier expectations and views of the present situation, according to data released Tuesday.
The Conference Board reported that its gauge of consumer confidence dropped to 58.6 in January, the lowest level since November 2011.
“Consumers are more pessimistic about the economic outlook and, in particular, their financial situation,” said Lynn Franco, economic indicators director at the Conference Board. “The increase in the payroll tax has undoubtedly dampened consumers’ spirits and it may take a while for confidence to rebound and consumers to recover from their initial paycheck shock.”
Analysts polled by MarketWatch had expected a January reading of 64.3, compared with an initial December estimate of 65.1, reasoning that higher payroll taxes and fiscal uncertainties would more than offset recent positive news on the labor market. See economic calendar. On Tuesday, the Conference Board revised December’s level to 66.7.
Generally when the economy is growing at a good clip, confidence readings are at least 90.
The Conference Board’s barometer of consumers’ expectations fell to 59.5 in January from 68.1 in December. The expectations gauge has dropped 30% in the past few months, with protracted fiscal negotiations among U.S. lawmakers taking a toll, among other factors.
Sticker shock from higher payroll taxes The percentage of consumer respondents who said they expect increased income in six months fell to 13.6% in January from 15.6% in December, while those expecting decreased income rose to 22.9% from 19.1%. The rest expect the same income. It seems that higher payroll taxes hit income expectations in January, analysts said.
“Disposable income is actually declining. The hike in the payroll tax guarantees that,” wrote Neil Dutta, head of U.S. economics at Renaissance Macro Research.
However, looking forward, analysts said that confidence may pick up.
“If these expectations of worsening income are unfounded and consumers are adjusting to a one-time shock to the level of disposable income due to the ending of the temporary payroll tax cut, we would expect confidence to bounce back somewhat over the coming months,” wrote analysts at New York-based RDQ Economics in a research note.
The percentage of consumer respondents who said they expect the economy to have more jobs in six months fell to 14.3% in January from 17.9% in December. Those expecting fewer jobs ticked up to 27% from 26.9%. The rest expect the same number of jobs.
The impact of consumer confidence on spending plans is mixed. The percentage of consumer respondents with plans to buy an automobile fell to 10.1% in January from 12.2% in December. Those with plans to buy a home remained at 5.3%. Meanwhile, those planning to buy major appliances rose to 47.7% from 46.1%.
Meanwhile, the Conference Board’s gauge of views on the present situation dropped to 57.3 in January from 64.6 December, the first decline since July. The percentage of consumers who said business conditions are good fell to 16.7% in January from 17.2% in December, while those saying conditions are bad rose to 27.4% from 26.3%. The rest said conditions are normal.

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