Consumer spending to bolster economy?

July 10, 2014 06:25 AM

Consumer sentiment improved last week as Americans were more upbeat about the U.S. economy than at any time in the past six years.

The Bloomberg Consumer Comfort Index rose to 37.6 in the week ended July 6, the third-strongest reading since the start of 2008, from 36.4 in the prior period. The gauge measuring views of the economy, which has surged 7.1 points since a mid-May low, reached the highest point since January 2008.

More hiring and fewer firings this year have helped firm sentiment, setting the stage for a pickup in consumer spending that will probably bolster the economy. Middle-income and wealthier households were among those turning more optimistic last week as stocks rose to a record and gasoline prices stabilized.

Improving labor and stock markets have “bolstered middle-income opinion about the state of the economy and their own personal financial situations,” said Joseph Brusuelas a senior economist at Bloomberg LP in New York.

Job creation exceeded economists’ expectations in June, climbing 288,000 after a 224,000 gain, while the unemployment rate fell to a near six-year low, Labor Department figures showed last week.

Companies are also limiting dismissals. A report today showed fewer Americans than forecast filed applications for unemployment benefits last week. Jobless claims declined by 11,000 to 304,000 in the week ended July 5, the fewest in more than a month, according to the Labor Department. The median forecast of 45 economists surveyed by Bloomberg called for 315,000 claims.

Stocks Decline

Stocks fell, with the Standard & Poor’s 500 Index (CME:SPU14) resuming a selloff that began earlier this week, as signs of financial stress in Portugal fueled demand for haven assets. The S&P 500 lost 1% to 1,954.04 at 9:35 a.m. in New York.

All three components of the weekly comfort measure increased last week. The gauge of the state of the economy rose to 27.7 from 27.3 the prior week. The measure for personal finances advanced to a nine-week high of 52.8 from 50.9 the week before, while buying climate index rose to 32.4 from 31.

Automakers are benefiting from increased optimism. Cars and light trucks sold at a 16.9 million annual pace in June, the strongest since July 2006, based on data from Ward’s Automotive Group. Deliveries at General Motors Co. and Ford Motor Co., the two-largest U.S. automakers, exceeded analysts’ estimates. Purchases at Toyota Motor Corp. rose 3.3% from a year earlier.

“Consumer confidence is pretty good,” Bill Fay, group vice president for the Toyota Division, said on a sales call earlier this month. “Consumers are out there, and they’re ready to buy automobiles.”

Worker Confidence

American workers are among those becoming more confident. The comfort index for part-time employees rose by 2.4 points to 41.1 last week, the highest since January 2008. Sentiment among full-time workers advanced to 42.5 from 42.1 in the prior week, while that of the unemployed also improved.

Confidence picked up among all groups earning at least $40,000 a year, while sentiment of those making less decreased.

All age groups were more upbeat last week, with those 65 and older reaching their best sentiment level since mid- September. Confidence among men increased to a nine-week high.

Comfort picked up in all regions expect the South, with Midwesterners reaching the highest level since August.

Since May, the Bloomberg Comfort Index, which is compiled by Langer Research Associates in New York, has been presented on a scale of zero to 100 rather than the previous minus 100 to 100, with the midpoint shifting to 50 from zero. The change is also reflected in the gauge’s components. It doesn’t affect the measures’ relationship to each other or their correlation with other economic indicators. Historical data have been revised and analysis of trends, values and other variables also have not been affected.

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