An improving job market is the driving force behind a rebound in American consumer confidence that will probably help propel faster economic growth in 2015.
The Bloomberg Consumer Comfort Index increased to 43.6 in the week ended Jan. 4, the highest level since October 2007, from 42.7 the period before, according to data issued today. Another report showed fewer workers filed for unemployment benefits last week, indicating employers are holding on to seasonal hires.
Fewer dismissals are making employed workers more secure ahead of a report tomorrow that is projected to show more Americans found jobs last month. Confidence is even firming among lower-income groups, indicating the benefits of the cheapest gasoline prices in more than five years and the lowest mortgage rates since mid-2013 are rippling through the economy.
Employment has “been the overriding factor boosting consumer confidence,” said Jennifer Lee, senior economist at BMO Capital Markets in Toronto. “You can point to gasoline prices, you can point to low rates in general, but at the end of the day, the job market is the most important.”
Stocks advanced, extending yesterday’s rally in the Standard & Poor’s 500 Index after a five-day selloff, on speculation central banks will support growth even as the U.S. economy strengthens. The S&P 500 rose 1.7% to 2,059.96 at 11:21 a.m. in New York.
The number of workers filing claims for unemployment insurance benefits decreased by 4,000 to 294,000 in the week ended Jan. 3, the Labor Department said today in Washington.
Employers finding it harder to fill vacancies as the job market tightens are probably holding on to workers hired during the holidays as the economy expands and consumer spending picks up. The need to keep staff may mean companies will soon also boost wages.
“The message is that there’s no letup in labor-market improvement,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, the top-ranked claims forecaster over the past two years, according to data compiled by Bloomberg. While fewer claims don’t guarantee a strong jobs report tomorrow given month-to-month volatility, “the underlying trend in employment growth still looks solid.”
Employers added 240,000 to payrolls last month to cap the strongest year for employment since 1999, according to the median forecast of economists surveyed by Bloomberg before tomorrow’s report. The jobless rate is projected to drop to 5.7%, the lowest since June 2008.
The consumer comfort index has climbed in eight of the past 10 weeks, driven by rosier views toward the economy and buying climate.
“The index is extending what was a strong finish to 2014,” Gary Langer, president of Langer Research Associates LLC in New York, which produces the data for Bloomberg, said in a statement. “Consumer sentiment has improved in line with a range of other indicators, including GDP, retail sales, employment and wages. Sharply falling gas prices haven’t hurt.”
The measure of Americans’ views on the current state of the economy, which Langer said had been “the black spot in consumer sentiment,” climbed to the highest level since September 2007.
The index of personal finances rose to a six-week high. While the buying-climate gauge was little changed last week at 39.2, it’s advanced 7.3 points over the past two months.
The overall comfort index averaged 36.7 in 2014, the highest in seven years.
Sentiment last week rose in four of seven income brackets, with those making $75,000 to $100,000 seeing the biggest improvement as their gauge rose to an almost eight-year high. Households making less than $50,000 collectively were more optimistic that at any point since records for the group began in 2010.
Within regions, confidence among Americans living in the West climbed to a seven-year high.
Today’s data corroborate a report last week from the Conference Board that showed its consumer confidence index increased to 92.6 in December. While the gain was less than forecast, the gauge was still close to the seven-year high reached in October.
Increased sentiment is translating into a pickup in purchases. Light vehicle sales may rise to 16.7 million or more this year, Toyota Motor Corp. said this week, surpassing the eight-year high of 16.5 million in 2014. Toyota, General Motors Co. and Ford Motor Co. have been benefiting from falling gasoline prices.
“The economy picked up a nice tailwind at the end of the year and thanks to better-than-expected growth, improving consumer confidence and increased employment levels,” Bill Fay, group vice president for Toyota’s U.S. sales arm, said on a Jan. 5 conference call to discuss sales and revenue. “This strength will carry the auto industry to a sixth straight year of growth in 2015 with analyst projections ranging as high as 17 million.”
The nationwide average cost of a gallon of regular gasoline was $2.18 yesterday, the cheapest since May 2009, according to figures from motoring group AAA.
Today’s report showed confidence increased to a more than seven-year high among full-time and part-time workers.