U.S. consumer sentiment rose to its highest level in more than four years in early May as Americans remained upbeat about the job market, a survey released on Friday showed.
Reuters reported that separate data earlier in the day showed U.S. producer prices unexpectedly fell in April as energy costs dropped by the most in six months, a sign of easing inflation pressures that could give the Federal Reserve more room to help the economy should growth weaken.
The Thomson Reuters/University of Michigan’s preliminary May reading on the overall index on consumer sentiment improved to 77.8 from 76.4 in April, topping forecasts for a small decline to 76.2.
It was the highest level since January 2008.
Despite the recent slowdown in job growth, nearly twice as many consumers reported hearing about new job gains than said they had heard about recent job losses, the survey said.
Even so, consumers were only slightly more optimistic about declines in the unemployment rate than they were a year ago, with only one in four expecting it to fall in the year ahead.
However, economists polled by the Philadelphia Federal Reserve, expect the U.S. unemployment rate to average 8.1% this year, and to fall to 7.7% next year.
Employers cut back on hiring in April and March after an acceleration at the start of the year. April’s unemployment rate eased to 8.1% as more people dropped out of the work force.
In a potential harbinger of increased spending, consumers’ buying plans for vehicles and durable goods improved at the beginning of the month, with 65% saying buying conditions were favorable, the highest level in more than a year.
“Households are feeling more comfortable. It’s pretty good news for consumer spending,” said Gus Faucher, senior macroeconomist at PNC Financial Services in Pittsburgh.
More Americans this month said the economy was improving than at any time in eight years as the job market picked up.
The share of households viewing the economy as heading in the right direction rose to 34% in March, the most since January 2004, pushing the Bloomberg monthly expectations gauge to a one-year high of 1. The weekly Bloomberg Comfort Index was minus 34.9 in the period ended March 18, down from a four-year high of minus 33.7 over the previous seven days.
“The sense that things have finally stabilized has clearly boosted confidence,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Downside risk to both the overall level of comfort and Americans perceptions of the direction of the economy remains” as fuel prices increase, he said.
The best six months of job growth since 2006 is probably behind the increase in optimism, raising the odds that the spending that accounts for about 70% of the economy will strengthen. Gains in incomes and employment may be among reasons households have so far been able to weather the jump in gasoline prices.
The weekly comfort index has been higher than minus 40 for the past six weeks, the longest stretch of readings above recession levels since the first half of 2008.
The number of Americans filing applications for unemployment benefits dropped last week to the lowest level in four years, reinforcing signs the labor market is improving, Labor Department figures showed today. Jobless claims decreased by 5,000 to 348,000 in the week ended March 17, the fewest since February 2008.
Confidence among men was minus 28.2 last week, up from last year’s low of minus 51.3 reached in September. The measure for women, at minus 41.3, has climbed 15.2 points from its 2011 low.
Still, higher gasoline prices may be limiting gains in confidence. The average price of regular gasoline at the pump climbed to a 10-month high of $3.86 a gallon on March 20, according to AAA, the nation’s largest auto club. It’s climbed 58 cents this year.
“We’re beginning to see positive signs that the economy is improving,” Randy Potts, president, chairman and CEO of Winnebago Industries Inc., said during a March 15 conference call. “Consumer confidence has been trending higher, and the jobless rate is improving. Both the stock market and housing markets are showing signs of improvement, but rising fuel prices do remain a concern.”
Inflation remains tame throughout the U.S. economy, with one big exception: gas prices.
The Associated Press reported that those higher prices haven’t derailed a steadily improving economy. But if they surpass $4 or $5 a gallon, experts fear Americans could pull back on spending, and job growth could stall, posing a potentially serious threat to the recovery.
A few weeks ago, economists generally agreed that the economy was in little danger from higher gas prices as long as job growth remained strong. But fears are now mounting that gas prices could begin to weaken consumer confidence.
The average pump price nationwide is $3.83 a gallon. Energy analysts say it’s bound to climb higher in the weeks ahead.
“It’s a thorn in the side of the consumer and businesses,” said Chris Christopher, an economist at IHS Global Insight. The economy this year “would have been better and stronger if we didn’t have to deal with this.”
So far, higher prices aren’t undermining the economic recovery, which is getting a lift from strong job creation. It would take a big jump – to around $5 a gallon – before most economists would worry that growth would halt and the economy would slide into another recession.
That’s because an improving economy is somewhat insulated from any threat posed by higher prices at the pump.
Even if prices ease after the summer driving season, don’t expect gasoline to fall below $3 a gallon. The government estimates that this year’s average will be $3.79, followed by $3.72 in 2013.
According to the Associated Press, most economists accept a rough guideline that a 25-cent rise in gas prices knocks about two-tenths of a percentage point off economic growth.
Gas prices also have an outsize impact on consumer confidence, Christopher noted. It’s a high-frequency purchase. Consumers notice the price whether they’re filling up or driving past a gas station.
Along with the unemployment rate and stock market levels, gasoline prices heavily determine how Americans see their financial health.
That effect was evident Friday when a decline was reported in the Thomson Reuters/University of Michigan index of consumer sentiment. The result surprised some economists who had assumed that higher stock prices and lower unemployment would lift consumer sentiment.
The Michigan report showed that “gasoline worries … are outweighing stock market gains and job growth” when it comes to influencing consumer attitudes, said Michael Hanson, an economist at Bank of America Merrill Lynch.
The price of gasoline has climbed 17% since the year began – to a national average of $3.83 a gallon. That’s the highest ever for this time of year. A month ago, it was $3.52.
U.S. consumer confidence jumped in February, lifted by better assessments of the job market, according to a report released Tuesday.
NASDAQ.com reported that the Conference Board, a private research group, said its index of consumer confidence increased to 70.8 this month from a revised 61.5 in January, first reported as 61.1. The February index is the highest since 72.0 in February 2011.
The latest index was far above the 64.4 expected by economists surveyed by Dow Jones Newswires.
The confidence report echoes the better attitudes reported last Friday by the Thomson-Reuters/University of Michigan late February survey of consumer sentiment.
“Consumers are considerably less pessimistic about current business and labor market conditions than they were in January,” said Lynn Franco, director of the Conference Board Consumer Research Center. “And despite further increases in gas prices, they are more optimistic about the short-term outlook for the economy, job prospects and their financial situation.”
Better labor markets are driving the more upbeat economic view.
The survey showed 38.7% think jobs are “hard to get,” down from 43.3% in January, and 6.6% think jobs are “plentiful,” up from 6.2% thinking that last month.
Consumers also think the job situation will improve over the next six months. The report shows 18.7% think there will be more jobs, up from 16.4% thinking that in January, and 16.9% expect fewer jobs, down from 19.1%.
Households also feel slightly more upbeat about future income, with 15.4% thinking their incomes will increase over the next six months, up from 13.8% saying that in January.
Despite the recent jump in gasoline prices, consumers, on average, expect inflation to be 5.5% 12 months from now, unchanged from the one-year rate expected in January.
Confidence among U.S. consumers rose more than forecast in January to the highest level in almost a year, on signs of improvement in the job market.
Bloomberg reported that the Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 75 from 69.9 at the end of December. The median estimate in a Bloomberg News survey called for 74, which matched the preliminary reading. The gauge averaged 89 in the five years leading up to the 18-month recession that ended in June 2009.
A strengthening labor market and higher stock prices may be boosting confidence, helping raise the odds that a pickup in household spending will continue into this quarter. At the same time, a sustained increase in gasoline prices and limited wage gains may restrain sentiment.
“Rising equity prices will be the primary catalyst for consumers’ better moods in the second half of January,” Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “Retail gasoline prices and policy uncertainties will limit the increase in confidence.”
Estimates for sentiment in the Bloomberg survey of 63 economists ranged from 72.5 to 76. The index averaged 64.2 during the last recession.
The U.S. economy expanded less than forecast in the fourth quarter as consumers curbed spending and government agencies cut back, validating the Federal Reserve’s decision this week to keep interest rates low for a longer period.
Consumer sentiment rose to its highest level in six months in early December as Americans adopted an improved economic outlook while the trade deficit narrowed in October, pointing to gathering momentum in the economy, according to Reuters.
The Thomson Reuters/University of Michigan’s preliminary reading on their index of consumer confidence climbed for a fourth straight month to 67.7, beating expectations as it rose from 64.1 in November.
“U.S. consumers appear to be ending the year in a better mood,” said Paul Dales, an economist at Capital Economics in London.
Improved confidence could lead Americans to spend more readily, which would add to the recent momentum from retail sales and factory output. At the same time, the narrowing in the trade deficit showed more of the purchases U.S. businesses and consumers are making were produced within the country.
Employment has also made gains in recent months, although some economists expect the pace of improvement will be too slow for consumers to ramp up spending for long.
“Although the recent increase may provide that little bit of support to spending in the malls in the coming weeks, it won’t lead to a long and lasting acceleration in consumption growth,” said Dales.
The sentiment reading exceeded the 65.5 forecast by analysts who were polled by Reuters.
Measures of consumers’ current and future assessment of economic and financial conditions also rose to their highest levels since June. The gauge of consumer expectations jumped to 61.1 from 55.4 in November.
Americans became more hopeful about the economic outlook in November, pushing consumer sentiment to a five-month high, though they still have a gloomy view of personal finances, a survey released on Friday showed.
Reuters reported it was the third monthly gain in a row for the index, an encouraging sign for an economy where consumer spending accounts for 70% of activity. Even so, sentiment is still at historically low levels, with the index down more than 13 points from a peak in February.
The Thomson Reuters/University of Michigan’s preliminary reading on the overall index on consumer sentiment rose to 64.2 from 60.9 the month before, topping the median forecast of 61.5 among economists polled by Reuters.
The survey’s gauge of consumer expectations climbed to 56.2 from 51.8. While respondents were no more positive about the current state of the economy, they were less likely to expect it to worsen in the year ahead, the survey said.
Economists said the lackluster levels underscored the recent disparity between weak sentiment data and stronger spending reports, suggesting dismal consumer attitudes may not reflect their purchases.
“Despite the persistence of low consumer sentiment stemming from negative views of government economic policy, concerns about the European debt crisis, and high unemployment, recent data releases on consumer spending have otherwise been in line with our expectation of continued modest growth in real consumption,” Michael Gapen, economist at Barclays Capital in New York, wrote in a note.
Consumers remained gloomy about their own finances with more respondents reporting their finances had worsened than improved. Just one in five consumers expected improvement in the year ahead.
Worries the United States could be in for another recession pummeled confidence in recent months, as did political wrangling over raising the debt ceiling in the summer. Confidence in policy has yet to recover, with 58% of respondents rating economic policies unfavorably.
“Overall, it is still likely that real consumer expenditures will not be strong enough during the year ahead to enable the higher rates of economic growth needed to offset the negative grip of income and job stagnation on consumer spending,” survey director Richard Curtin said in a statement. “Although improved, a renewed downturn in the economy still has an uncomfortably high probability of occurring.”
Still, vehicle buying plans improved as 60% of consumers said buying conditions were favorable, helped by price discounts.
Confidence among U.S. consumers plunged in August to the lowest level since May 1980, adding to concern that weak employment gains and volatility in the stock market will prompt households to retrench.
Bloomberg reported that the Thomson Reuters/University of Michigan preliminary index of consumer sentiment slumped to 54.9 from 63.7 the prior month. The gauge was projected to decline to 62, according to the median forecast in a Bloomberg News survey.
The biggest one-week slump in stocks since 2008 and the downgrade of country’s top credit rating may be exacerbating consumers’ concerns as unemployment hovers above 9 percent and companies are hesitant to hire. Rising pessimism poses a risk household spending will cool further, hindering a recovery that Federal Reserve policy makers said this week was already advancing “considerably slower” than projected.
“We’re really at the bottom of the barrel right now,” Lindsey Piegza, an economist at FTN Financial in New York, said before the report. “Americans are feeling an increasing level of frustration with their leaders in Washington. We’re also seeing a slew of weaker than expected economic reports.”
Estimates of 69 economists for the confidence measure ranged from 59 to 66.5, according to the Bloomberg survey. The index averaged 89 in the five years leading up to the recession that began in December 2007.
A report from the Commerce Department today showed sales at U.S. retailers climbed 0.5 percent in July, the most in four months, indicating consumers are holding up even as employment slows. Purchases excluding automobiles rose more than forecast.
Confidence among U.S. consumers unexpectedly fell in July to the lowest level in more than two years, adding to concern that weak employment gains and falling home prices may keep households from spending.
Bloomberg reported that the Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 63.8, the weakest reading since March 2009, from 71.5 the prior month. The gauge was projected to rise to 72.2, according to the median forecast of 62 economists surveyed by Bloomberg News.
Smaller jobs gains, falling home values and concern over the outcome of government debt talks may be jarring Americans, underscoring Federal Reserve Chairman Ben Bernanke comments to Congress earlier this week. The figures raise the risk that household spending, which accounts for about 70 percent of the economy, will continue to cool.
“There’s certainly been a lot of negative headlines, with the very weak employment report a week ago and the ongoing debt limit impasse,” saidJames O’Sullivan, chief economist at MF Global Inc. in New York, who predicted the gauge would fall to 68.0.
Whether the economic recovery in the U.S. can continue could depend on a single factor: consumer confidence.
As reported by USA Today, confidence is important because consumers who are upbeat about prospects tend to spend more, driving corporate profits and job growth. Companies hire more employees, boosting spending, growth and confidence.
Such self-reinforcing loops are the stuff that recoveries are made of, and one reason the current rebound has been so tepid. While the economy has bounced back from a devastating recession, the gains have largely helped better-off households, economic data show. That has left out a huge swath of consumers.
The disparity will play a decisive role in reports on how consumers view the economy. Tuesday, the Conference Board will release its widely followed consumer confidence report for June. In May, it dropped to 60.8 from 66 in April. Since the economy has shown little sign of improvement, it’s likely to indicate further concern. “We have a backlog of Americans who’ve been out of work for two years,” says Ed Farrell, director of Consumer Reports National Research Center. “It’s going to take a strong surge in the economy to pull these people back in.”
According to a monthly survey released last week by Consumer Reports, households that earn less than $50,000 have been extremely downbeat on the economy every month since the survey’s April 2008 launch. Such households make up half of the U.S. population. Meantime, affluent households — those that pull down $100,000 or more a year — have been feeling on average positive about the economy since February 2010.
The primary factor behind the disparity: jobs. Affluent households have seen little impact on job prospects overall. Meanwhile, low-income households have seen a net decline in jobs for 23 out of the past 24 months, according to the survey.
To be sure, the strength in upper-income households has been an important element in getting the economy back on its feet. While just 18% of households earn more than $100,000 a year, they account for slightly more than one-third of all household spending, according to a recent survey by the Bureau of Labor Statistics.
There are other factors behind the improved outlook among upper-income families besides jobs. For one, they tend to own stocks. The market has undergone a substantial rally since early 2008, adding to the so-called “wealth effect.” While the market has taken a hit in recent weeks, it remains well above where it stood two years ago.
The rally has been little comfort to low-income households, which hold few stocks. Instead, high oil prices have dragged on the discretionary income of less well-to-do families.
The performance of high-end retailers vs. discounters highlights the disparity. Upscale retailers such as Nordstrom and Saks have recently posted strong results. Tiffany & Co. reported a 25% jump in its first-quarter net income. The high-end jewelry retailer said even though it had to mark up prices due to higher gold and silver costs, demand hasn’t slackened. Wal-Mart Stores, meanwhile, which caters to cash-strapped families, reported weak first-quarter sales. Others, such as Old Navy and Aeropostale have also been struggling, says David Berman, a hedge fund manager who closely tracks retailers. The recovery “has been a tale of haves and have-nots,” Berman says.
While luxury-goods retailers have seen no slackening from higher costs, the same can’t be said for mid-range retailers and discounters. A surge in materials prices such as cotton has made it more costly for many retailers to produce finished goods. In turn, they’re raising prices.
La-Z-Boy recently boosted its prices to offset higher costs. The company has said demand has already slackened due to high prices at the pump. More expensive recliners could also crimp sales.
One positive sign of late for less-wealthy families has been a drop in oil prices. The turmoil in the Middle East, which triggered a pop in prices earlier this year, has cooled off recently, though hot spots such as Libya remain a concern. Last Thursday, crude prices plunged after the International Energy Agency said its members would release 60 million barrels of crude oil from emergency stocks.
Lower oil prices can provide a meaningful pop to lower-income families. Among households that make $70,000 or less, 5% of their expenditures go toward gasoline and motor oil, while households in the higher-income bracket allocate 3% of their outlays toward fuel.