Confidence Declines as Holidays Approach

Americans unexpectedly turned cautious this month despite a string of upbeat economic news, casting some doubt over prospects for the holiday shopping season.

The University of Michigan’s preliminary reading of consumer sentiment dropped to 89.6 in December from November’s final reading of 93.7, even though the labor market has started to improve and the stock market is rising steadily.

The downbeat reading surprised economists, since a stronger economy has finally started to produce jobs. But they cautioned against reading too much into the report.

“It’s only one month’s figure, but households as well as businesses have generally taken a very cautious line in this recovery,” said 4Cast research director Alan Ruskin.

Shoppers won’t have to contend with higher prices for some time to come. A separate government report showed wholesale price pressures remained muted, unexpectedly dropping 0.3% in November as food, energy and automotive costs tumbled. Economists had expected a 0.1% rise in overall producer prices.

Even when food and energy costs are stripped out, the so-called core index of producer prices fell 0.1%.

The report on wholesale prices provided some support for the Federal Reserve’s comments in the minutes of its Oct. 28 meeting, released Thursday, that inflation could remain very low for “a year or two.”

The consumer confidence and wholesale price reports overshadowed news that the trade deficit widened slightly to $41.8 billion in October, as a surge in imports outweighed the effect of rising exports, according to a Commerce Department report.

Reflecting stronger U.S. demand, imports climbed 2.1% in October to a record $129.7 billion as imports from China, the European Union and Latin America hit new highs.

In a positive sign for the global economy, higher demand from abroad pushed up U.S. exports by 2.6% in October to the best level since March 2001.