Bloomberg News

Consumer Sentiment in U.S. Climbs as Outlook Brightens: Economy

December 12, 2011

Dec. 9 (Bloomberg) -- Confidence among U.S. consumers rose more than forecast in December as Americans’ outlooks improved.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 67.7, a six-month high, from 64.1 at the end of November. The median estimate of 73 economists surveyed by Bloomberg News called for a reading of 65.8. The gauge averaged 89 in the five years leading up to the recession that began in December 2007 and ended in June 2009.

Falling gasoline prices, a drop in unemployment and a rebound in stocks may be helping boost confidence, raising the odds that the pickup in household spending will continue into 2012. Nonetheless, gridlock over deficit-cutting measures in Washington and concern that a European nation will default represent roadblocks to additional gains in sentiment.

“There has been a disconnect from the almost recessionary sentiment readings and reasonably good spending numbers, and something had to give,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh, who projected sentiment would rise to 68. “Spending has held in there and consumers’ negative attitudes have improved. Consumers started the holiday season strong and it looks like they will end it decently.”

Stocks rose after the report, adding to earlier gains as European leaders agreed to boost a rescue fund and tighten budget rules to stem the region’s debt crisis. The Standard & Poor’s 500 Index climbed 1.5 percent to 1,252.71 at 11:29 a.m. in New York. Treasury securities fell, pushing the yield on the benchmark 10-year note up to 2.02 percent from 1.97 percent late yesterday.

Germany, France

German exports fell in October and French industrial output stagnated, adding to signs that the euro region may slide into recession as leaders struggle to solve the sovereign debt crisis, reports showed today.

German sales overseas dropped 3.6 percent from September, the Federal Statistics office in Wiesbaden said, almost three times economists’ median forecast for a 1.3 percent decline. In France, industrial production was flat in October after falling 2.1 percent a month earlier, more than the initial 1.7 percent estimate, Paris-based statistics office Insee said.

In Asia, China’s inflation reached a 14-month low and industrial production rose less than forecast, bolstering the case for more stimulus measures to shore up growth in the world’s second-largest economy. Consumer prices increased 4.2 percent from a year earlier, the statistics bureau said on its website. Output gained 12.4 percent, the smallest increase since August 2009.

Survey Results

Estimates for U.S. consumer sentiment in the Bloomberg survey ranged from 63 to 68. The index averaged 64.2 during the 18-month recession.

Another report today showed the trade deficit narrowed in October to the lowest level of the year, reflecting a drop in imports that will help give the economy a lift. The gap shrank 1.6 percent to $43.5 billion, smaller than projected, from $44.2 billion in September, according to data from the Commerce Department.

The Michigan survey’s index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, climbed to 61.1 from 55.4.

The index of current conditions, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, increased to 77.9 from 77.6 the prior month.

Inflation Outlook

Consumers in today’s confidence report said they expect an inflation rate of 3.1 percent over the next 12 months, down from 3.2 percent in November.

Over the next five years, the range tracked by Federal Reserve policy makers, Americans expect a 2.7 percent rate of inflation, the same as the prior month.

The Michigan index compares with the Bloomberg Consumer Comfort Index which was minus 50.3 in the week ended Dec. 4, down from minus 50.2 a week earlier. The measure has been at minus 50 or less for 11 of the past 12 weeks, a performance unprecedented in its 26-year history.

A gallon of regular unleaded gasoline fell to $3.27 on Dec. 5, its lowest since February, according to AAA, the nation’s largest automobile association. The unemployment rate in November fell to 8.6 percent, its lowest in more than two years, while the Standard & Poor’s 500 Index gained 6.5 percent from Nov. 25 through yesterday on signs Europe would avoid a default.

Early holiday season sales, which traditionally begin the day after Thanksgiving, provided a mixed picture. Limited Brands Inc. and Macy’s Inc. posted November same-store sales that topped analysts’ estimates as Thanksgiving weekend deals drew record crowds, while stores that missed out on the shopping blitz trailed expectations.

Holiday Excitement

“What you saw on Black Friday is people were excited early,” Saks Inc. Chief Executive Officer Steve Sadove said in a Bloomberg Television interview Dec. 1. Saks posted a 9.1 percent increase in November sales from a year earlier.

Kohl’s Corp. reported sales that declined 6.2 percent. Monthly sales for the Menomonee Falls, Wisconsin-based company were “disappointing,” Chief Executive Officer Kevin Mansell said in a statement.

Ahead of the holiday shopping season, consumers were limiting their expenditures. Household spending slowed to a 0.1 percent gain in October, the smallest since a 0.2 percent drop in June, according to Commerce Department data.

President Barack Obama and congressional leaders are trying to put together a package of year-end tax and spending provisions that can be enacted, including an extension of the payroll tax cut and jobless benefits.

A final deal may not emerge until next, because the U.S. House of Representatives won’t vote on its plan until then.

--With assistance from Chris Middleton in Washington. Editors: Carlos Torres, Kevin Costelloe

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net;

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net


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