Consumer sentiment in U.S. rose to five-month high in December

December 23, 2013 04:38 AM

Consumer confidence in the U.S. rose to a five-month high in December, indicating Americans will keep spending early next year.

The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 82.5 from 75.1 in November. Economists in a Bloomberg survey called for 83, according to the median projection. The preliminary reading for December was 82.5.

A pickup in employment, higher property values and stock-market gains (CME:SPH14) are bolstering household wealth and underpinning sentiment. Another report today showed the improvement is translating into more consumer purchases, which account for almost 70% of the economy.

“Sentiment is getting a lift from a better job market and rising equity prices, and there’s been some good news on the policy front,” Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “Consumers will respond to this.”

Estimates in the Bloomberg survey ranged from 77 to 85. The index averaged 89 in the five years leading up to the slump that began in December 2007, and 64.2 during the 18-month recession that ended in June 2009.

Other figures today showed personal spending increased 0.5% in November after a 0.4% gain that was larger than initially reported, according to the Commerce Department. After adjusting the data for inflation, purchases also climbed 0.5%, the biggest advance since February 2012.

The Michigan sentiment survey’s current conditions index, which takes stock of Americans’ view of their personal finances, rose to a five-month high of 98.6 in December, from 88 in November.

Expectations Index

The measure of expectations six months from now increased to 72.1 from 66.8 last month.

Americans expect an inflation rate of 3% over the next year, compared with 2.9% in the prior month. Over the next five years, they expect a 2.7% rate of inflation, down from 2.9% seen in November.

Cheaper fuel is providing relief to households. The cost of a gallon of regular-grade gasoline averaged $3.25 in the first 20 days of December, compared with the 2013 high of $3.79 reached on Feb. 26.

Today’s Michigan survey figures are consistent with other confidence measures reported recently. The Bloomberg Consumer Comfort Index for the week ended Dec. 15 jumped to the highest level since September.

Home Prices

Property values are one source of comfort for homeowners. The S&P/Case-Shiller national home-price gauge rose 11.2% in the third quarter from the same period in 2012, the biggest year-over-year advance since the first three months of 2006, the latest available data showed.

Equity prices are buoying Americans’ wealth, with the Standard & Poor’s 500 Index up 27% this year through last week.

Payrolls expanded by 203,000 workers in November after a 200,000 gain in October, and the jobless rate fell to a five- year low of 7%, according to Labor Department figures.

The improvement in the economy and job market helps explain why the Federal Reserve decided to begin reducing stimulus. The central bank on Dec. 18 said it will trim monthly bond purchases to $75 billion from $85 billion starting in January.

Sustained gains in consumer confidence are fueling purchases and benefiting companies such as Neiman Marcus Group LLC. Retail sales in November climbed by the most in five months, Commerce Department figures showed on Dec. 12.

Neiman Marcus

Neiman Marcus Chief Executive Officer Karen Katz said the feedback from the Dallas-based retailer’s sales staff was that shoppers are spending this holiday season, and the most affluent consumers are “feeling good” about their finances.

“We are in constant communication with our sellers, they’re telling us that they’re just feeling like the customers are coming in really ready to shop,” Katz said on a Dec. 18 earnings call with analysts. “If we offer them kind of unique merchandise, really regardless of the category, they’re really open to spending money.”

Demand for cars continues to firm. Auto sales advanced to a 16.3 million annualized rate in November, the highest since May 2007, according to data from Ward’s Automotive Group.

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