Consumer Sentiment in U.S. Probably Fell to 16-Year Low on Loss of Jobs

By Courtney Schlisserman

April 11 (Bloomberg) -- Confidence among U.S. consumers sank to a 16-year low this month as the labor market continued to weaken and gasoline prices rose, economists said ahead of a private report today.

The Reuters/University of Michigan preliminary index of consumer sentiment fell to 69, from 69.5 in March, according to the median of 64 forecasts in a Bloomberg News survey. The projected reading would be the lowest since February 1992.

Americans are struggling with the longest decline in payrolls in more than four years, higher food and energy costs and the overall weakening in the economy. The drop in sentiment and in general wealth has started to weigh on consumer spending.

``The consumer is on the mat right now,'' Jonathan Basile, an economist at Credit Suisse Holdings in New York, said before the report. ``We know consumers don't always do what they say. But, based on what the survey is telling us, they're in a consolidation phase and they're concerned about the economy and it's likely to make them more cautious about future purchases.''

The group is scheduled to release the report at about 10 a.m. Washington time. Estimates in the Bloomberg survey ranged from 65 to 71.

A separate report from the Labor Department, scheduled for 8:30 a.m., is forecast to show that the import price index rose 2 percent in March, according to the survey median.

Energy Costs

Higher energy costs probably boosted the import price index for March and are playing a key role in dimming consumers' outlooks. The average price of crude oil futures traded on the New York Mercantile Exchange in March jumped to $105.42 a barrel, from $95.01 a month earlier.

Gasoline reached a record $3.332 a gallon in the week ended April 7, according to the Energy Information Administration. The administration, which is the Energy Department's statistical arm, forecast on April 8 that gasoline will cost an average of $3.54 a gallon between April and September.

The slump in the labor market is also hurting consumers. Employers eliminated 80,000 workers from their payrolls in March, a third consecutive decline and the biggest in five years, the Labor Department reported last week.

Job losses may continue into this month. The government said yesterday that the number of people remaining on unemployment-benefit rolls rose last week to the highest in almost four years.

Recessionary Signal

The drop in payrolls over the past three months is a recessionary signal. Economists surveyed by Bloomberg News from April 2 to April 8 forecast the U.S. economy won't expand at all the first six months of this year. A majority of those polled also projected the world's largest economy is, or will soon be, in a recession.

Consumer spending, which accounts for more than two-thirds of the economy, will rise at an average annual pace of 0.5 percent in the first half of the year, according to the Bloomberg News survey. That would be the smallest two-quarter gain since purchases fell in the six months ended March 1991.

The U.S. retail market ``will remain challenging this year throughout the holiday season,'' Patrick Bousquet-Chavanne, group president of Estee Lauder Cos., said April 9 in an interview at the World Retail Congress.

Federal Reserve officials anticipated the economy will shrink in the first half of the year and expressed some concern about ``a prolonged and severe economic downturn'' as they cut interest rates last month, according to minutes of their most- recent policy-setting meeting, which were released April 8.

``Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely,'' the Fed said in the minutes of the March 18 Federal Open Market Committee meeting.

The Fed has cut its benchmark overnight lending rate by 3 percentage points since September to try to avert a recession.

To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

Daily Forex Fundamentals | Written by DailyFX | Apr 11 08 02:01 GMT |

US Dollar Rebounds As Bernanke Calls For Greater Oversight The US dollar consolidated yesterday's losses as Fed Chairman Bernanke pushed for greater oversight in the financial markets, and picked up the biggest gains against the euro as the pair retraced to 1.574. Against the other European currencies, the US dollar rose against the British Pound as the Bank of England reduced the interest rate by 25bp to 5.00 percent, and was followed by the Swiss franc as the pair rose to 1.008. The low yielding Yen also fell against the US dollar as demands for carry trades accelerated. Accordingly, the commodity currencies picked up modest gains against the US currency as investors moved into higher yielding assets, with the New Zealand dollar taking the biggest bit out of the US dollar as it traded in the 0.7995 range. In a speech this morning, Fed Chairman Bernanke pressed for increased oversight of the financial sector, and stressed that US regulators must work to ensure that banks will have the necessary capital to cushion themselves from inevitable market shocks. Amid the reassuring statements by Chairman Bernanke, fresh economic data persists to dampen the growth outlook as the trade deficit widened to minus $62.3B from minus $58.2B due to an unexpected rise in imports. Labor conditions have also become a growing problem as Continuing Claims rose to a four year high of 2940K as recessionary fears pushed firms to cutback on new recruitments, while Initial Jobless Claims fell the most in two years to 357K as heart sunken workers decided to leave the labor force. The ICSC Chain Store Sales index added to the bleak outlook as it plunged to minus 0.5 percent from 1.9 percent, while the Monthly Budget Statement deficit narrowed to minus $48.1B from minus $96.3B. The stock markets retraced early morning losses as retail giant Wal-Mart increased their earnings forecast - breaking the two day losing streak. As a result, the DJIA rose 54.72 points to 12,581.98 points as IBM and Merck posted the biggest gains out of the big 30. Among the broader indices, the S&P500 climbed 6.06 points to 1,360.55 points amid 205 stocks hitting a new 52 week low. As US regulators work to restore stability in the financial markets, investors began to feed their risk appetite and fled the safe haven of risk free bonds. As a result, the benchmark 10-Year yield jumped to 3.541 percent from 3.486, while the 2-Year yield surged to 1.839 percent from 1.774 percent. Looking ahead, we look to finish the week on a weaker note as we expect the Import Price index to hold at 13.6 percent, and forecast the U. of Michigan Confidence index to inch lower to 69.0 from 69.5.

Source : Actionforex.com