Consumer Sentiment Slips as Mortgage Rates Rise, Economy Slows

NEW YORK -- U.S. consumer sentiment slid in September to its lowest in five months as consumers saw higher interest rates and sluggish economic growth ahead, a survey released Friday showed.

The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment slipped to 77.5 in September from 82.1 in August -- the lowest final reading since April.

The September figure was lower than the 78.0 economists had expected in a Reuters poll, but higher than a mid-month preliminary reading of 76.8.

Looming Congressional showdowns over a possible government shutdown and the need to raise the debt ceiling or else face the possibility of default have renewed worries about fiscal policy and legislative gridlock.

"While few consumers expected a federal shutdown, complaints about government policies have risen, and more importantly, prospects for job growth have diminished," survey director Richard Curtin said in a statement.

Other gauges also hit their lowest final reading since April: the gauge of consumer expectations, at 67.8, and the index of current conditions, at 92.6.


While the U.S. Federal Reserve decided this month not to pull back on its massive bond-buying program yet, analysts still see the Fed scaling back in coming months.

Those views, in turn, have helped push up long-term interest rates by more than a full percentage point since May, with 30-year mortgage rates recently hitting a year high of 4.80 percent.

Economists fear consumer sentiment could weaken further if higher interest rates start to slow momentum in a housing revival that has been one of the brightest spots in the overall U.S. recovery.

The one-year inflation expectation rose to 3.3 percent from 3.0 percent while the five-to-10-year inflation outlook edged up to 3.0 percent from 2.9 percent.

source: dailyfinance.com

Why Your Insurance Premiums Just Went Up (and What to Do About It)

Have you noticed that your insurance premiums are going up lately? Going up a lot?

You're not alone. According to a new report out from Bankrate.com, more than one-third of U.S. consumers say their insurance costs grew in 2012. In a few cases, this was because people had more things to insure -- they bought a new house, or a second car, or perhaps brought home a new baby, who needed some health insurance. But in the majority of cases -- 62 percent -- consumers say they're paying more simply because their insurance company is charging more.

Insurance professionals estimate the average homeowner's insurance premium has risen 10 percent per year every year since 2008.

What's Behind the Hikes

But is this a case of insurers price-gouging their customers? Or are there legitimate reasons for the rising rates? Actually, it's the latter.

Insurance Information Institute spokesman Michael Barry points out that between "Hurricane Irene, the Joplin tornado that was the single biggest insurance event in Missouri history, and widespread winter storms, tornadoes and flooding in interior states like Minnesota," the past decade has been one of the costliest in terms of natural disasters in U.S. history. And because insurance companies bear a large portion of that cost, it only makes sense that they might need to charge higher premiums to pay for all the claims they've been receiving.

Health care costs, too, are on the rise -- leading to higher premiums for that flavor of insurance as well. Consumer Federation of America insurance director J. Robert Hunter blames health insurance for much of the inflation indicated in the Bankrate survey.

But the real reason is bigger than either of these explanations.




The Float is Sinking

On one hand, yes, insurance companies of all stripes are spending more to satisfy customer claims. The increased costs these companies face drive them to raise their rates to recoup their expenditures. But that's only half of the problem.

To understand the other half, you need to understand how insurance companies work -- how they make their money. This basically consists of three steps:

Step 1 is, of course, to collect premiums.

Step 2 is to invest the money from those premiums until it comes time to pay out on a claim. An insurance company doesn't just put the money under a mattress after cashing your premium check. Rather, it takes this money -- called "float" in industry parlance -- and invests it in the corporate bond market, in federal savings bonds, and in the stock market.

Here's where the problem begins: The interest rates insurers have been getting on their bond investments have been frightfully low these past few years. Similarly, the stock market is in a funk. It's been doing well these past few weeks, true. But the bigger picture shows that the Dow Jones Industrial Average, for example, still hasn't regained its highs of October 2007. That means that for more than five straight years, insurers haven't earned anything on their stock holdings.

And this brings us to Step 3, which is the real problem. Insurance companies were counting on profits from the stock market (and the interest on those bonds) to help cover their costs when it finally came time to pay out cash to satisfy insurance claims. Those profits simply haven't materialized, and as a result, insurers need to find money somewhere else in order to make good on insurance claims from their customers.

Guess where they found it?

That's right. They found it in your wallet. In order to make up the difference between the money they thought they would have, and the amount they actually wound up with, insurers are raising prices. It's really the only solution for them -- and even then, insurance professionals say that there's been little or no profit for insurance companies in homeowners insurance since about 2008.

What Can You Do?

Of course, that's small consolation for those of us footing the bill for the insurers' miscalculation. So what's the solution?

Bankrate offers several ideas for cutting costs, ranging from raising the deductible on your homeowners and auto insurance policies, to dropping collision coverage on an old car, to buying home and auto insurance from the same company. (When you "bundle," insurers will often give you a discount.)

Probably the best thing you can do to mitigate rising insurance costs, though, is shop around for a better deal. Bankrate notes that in some cases, an hour spent on the phone calling insurers and comparing rates can save you in excess of $200 a year. Even if you don't have an hour to spare, though, you can still shop around by asking an insurance broker to do the comparisons for you.

It could "save you 15 percent or more on your car insurance," as one famous lizard famously promised. With any luck, it could even get you back to the prices you were paying before the lizard -- and everyone else -- began raising their rates.

source: dailyfinance.com

Consumers say 'Show me the bargains'

U.S. consumers say the deals had better be good if retailers want them to spend their money this weekend.

This is the earliest Thanksgiving since 2007, giving consumers plenty of time to get their shopping done before Christmas and Black Friday deals are designed to get consumers in the spending mood.

A Black Friday shopping survey by the National Retail Federation says as many as 147 million people plan to shop this weekend, down from the 152 million who planned to do so last year. While 71 million said they definitely planned to shop, 76 million others said they would wait and see what retailers had in-store.

"Though the Black Friday tradition is here to stay, there's no question that it has changed in recent years," NRF President and Chief Executive Officer Matthew Shay said in a statement. "It's critical for retail companies to constantly evolve as consumers do, and right now shoppers want great deals, good value, and convenience -- exactly what we're seeing with this season's late and early openings, price-matching, layaway and mobile offerings."

Nearly half of shoppers say they keep up with advertising circulars throughout the holiday and more than 30 percent say they watch for television ads. A growing number of U.S. shoppers are keeping track online. The NRF said nearly 27 percent will follow retailers' websites and 31 percent will track emails from retailers to get the latest holiday announcements.

"The days of waking up Thanksgiving morning to find out what retailers' Black Friday promotions will be has transitioned into an ongoing dialogue between companies and their customers starting days in advance," BIGinsight Consumer Insights Director Pam Goodfellow said. "Through sites like Twitter, Facebook and Pinterest, company blogs, emails and mobile apps, consumers can connect with their favorite retailers like never before."

Discover says consumers plan to spend more this holiday season than last year, as long as retailers are offering good deals. The 2012 Discover Annual Holiday Shopping Survey suggests spending will jump to an average of $838 this year, up from $748 in 2011.

Half of consumers say they plan to spend about the same as they did in 2011, and 23 percent plan to spend more this year. Forty-two percent say retailers' sales and promotions will most influence their holiday spending.

The Discover survey suggests 46 percent of shoppers plan to spend $100 to $500, 26 percent, say they plan to spend $500 to $1,000 and 14 percent say they plan to spend $1,000 to $5,000.

Consumers are looking for good deals online, as well as incentives such as free shipping. Discover said 75 percent of consumers plan to shop around online for better prices.

"When asked to choose from the following five online deals they are looking for, shoppers ranked free shipping first with 79 percent, followed by exclusive sales and offers, coupon codes, early access to sales and Facebook-exclusive promotions," Discover said.

Retailers are expecting to see a boost in mobile shopping this year. The NRF said nearly 53 percent of those who own smartphones and nearly two-thirds of those who own tablets plan to use their devices to research and purchase holiday gifts, food and decor.

Walmart is providing special perks to customers who "like" their Facebook page or download Walmart's mobile app, offering early access to specials and information, the company said.

The Walmart app allows customers to use the "in-store mode" on their smart phones to view local ads, access local store pricing and see the aisle location of products carried in that specific store.

Cyber Monday is a growing trend among shoppers looking to take advantage of special online deals that can save them the hassle of heading out to the shopping mall.

Forty-one percent of respondents to the PriceGrabber.com's third winter holiday shopping survey said they planned to shop on Cyber Monday, up from 37 percent last year and 33 percent in 2010. The online shoppers said they wanted to take advantage of one-day deals, discounts and free-shipping offers.

While Cyber Monday is often associated with employees returning to the office after the Thanksgiving weekend only to spend most of their time browsing for holiday deals online, PriceGrabber's survey suggests 83 percent of people planned to do their Cyber Monday shopping from home.

Rojeh Avanesian, vice president of marketing and analytics for PriceGrabber.com, said clothing and consumer electronics are expected to be the top gift purchases on Cyber Monday.

Plans by Target, Sears and Walmart to get a jump on Black Friday by opening stores Thursday night have sparked fears of employee and consumer backlash.

"Retailers are under immense pressure to get the holiday shopping season off to a strong start," John A. Challenger, chief executive officer of global outplacement firm Challenger, Gray & Christmas said in the firm's holiday shopping outlook. "As big box chains face growing competition from discounters like Target and Walmart, not to mention the fierce competition from online retailers like Amazon.com, they are all compelled to find whatever edge they can to get shoppers into their stores,"

Challenger warned, however, retailers are taking a risk by being open on a day set aside for giving thanks.

"Not only is there the risk of creating disgruntled workers, who feel they have no choice but to accept the holiday hours in this economy, but in the wake of the worst recession since the Great Depression, some Americans have soured on the corporate excess and the profits-at-any-cost mentality that some say helped hasten the economic meltdown," Challenger said.

However, he said, it is not as if no one works on Thanksgiving.

"You can't close hospitals or fire departments," he said. "Grocery stores provide essential last-minute Thanksgiving meal items, but also baby formula, medicine and other products that should be obtainable every day of the year. Some would even argue that the NFL provides a necessary service in the form of family entertainment and bonding. However, it would be difficult to argue that the need to buy a deeply discounted DVD player or LCD television cannot wait another eight to 10 hours."

The NRF 2012 holiday spending survey of 9,383 consumers was conducted by BIGinsight Nov. 1-6. The margin of error is 1 percentage point. The Discover survey of 506 male and 497 female adults was conducted by Penn Schoen Berland Oct. 26-30.

source: upi.com