Bloomberg News

Gain in U.S. Consumer Confidence Exceeds Forecasts: Economy

December 28, 2011

(Updates with closing market prices in fifth paragraph.)

Dec. 27 (Bloomberg) -- Confidence among consumers rose to an eight-month high in December as an improving job market helped Americans regain all the ground lost following the mid- year government budget battle and credit-rating downgrade.

The Conference Board’s index increased to 64.5, exceeding all estimates in a Bloomberg News survey and the highest since April, from a revised 55.2 reading in November, figures from the New York-based private research group showed today. Another report showed home prices fell more than projected in October.

Unemployment that dropped last month to its lowest in more than two years and the cheapest gasoline since February are prompting households to take advantage of discounts during the holiday shopping season. The improvement in sentiment may help sustain household purchases, which account for about 70 percent of the economy, into the new year.

“A large part of the problem in the economy is one of confidence, and to the extent that sentiment begins improving it would be a positive for growth,” said Dana Saporta, director of U.S. economic research at Credit Suisse in New York, one of three forecasters that projected a reading of 63, the highest in the Bloomberg survey. “There are still a lot of headwinds out there, including the continued decline in home prices.”

Stocks were little changed after the reports as the improvement in confidence overshadowed concern about Europe’s debt crisis and the drop in home prices. The Standard & Poor’s 500 Index closed at 1,265.43 at in New York.

Italian Retailers

Italian retailers had the worst Christmas in 10 years, consumer group Codacons said today, as austerity measures to combat the sovereign debt crisis prompted households to cut spending. Italians spent 48 euros ($62.75) less per person this holiday season than the average of the past five years, Rome based Codacons said in a statement on its website.

In China, profit gains at industrial companies cooled. Net income increased 24.4 percent in the first 11 months of 2011 from a year earlier to 4.66 trillion yuan ($737 billion), the National Bureau of Statistics said on its website today. The pace compared with a 25.3 percent gain in the first 10 months and a 27 percent rise in the first three quarters. The lingering Europe debt crisis and a cooling domestic property market are dimming growth prospects for the world’s second-largest economy.

The median forecast of 69 economists surveyed by Bloomberg forecast the U.S. consumer confidence gauge would rise to 58.9. Estimates ranged from 52 to 63. The measure averaged 53.7 during the recession that ended in June 2009 and 98 during the economic expansion that ended in December 2007.

Confidence Measures

Other surveys have reflected similar gains in optimism. The Bloomberg Consumer Comfort Index improved to minus 45 in the period ended Dec. 18 from a reading of minus 49.9 the prior week, marking the biggest seven-day gain since January. The Thomson Reuters/University of Michigan index of consumer sentiment rose to a six-month high in December.

The S&P/Case-Shiller index of home values in cities dropped 3.4 percent from October 2010 after decreasing 3.5 percent in the year ended September, the New York-based group said. The median forecast of 27 economists in a Bloomberg survey projected a 3.2 percent decrease.

The real-estate market is bracing for another wave of foreclosures that may keep pressure on home prices, indicating any housing recovery will take time to develop. Nonetheless, rising builder confidence, a pickup in construction and fewer unsold new properties for sale are among signs the industry that triggered the last recession is steadying.

Striving for ‘Equilibrium’

“It’s a picture of a market that’s trying to get back to equilibrium,” Karl Case, co-creator of the index, said today in an interview on Bloomberg Radio. “Different things are happening in different markets. It’s very segmented. You’ve got these huge inventories that we’ve never really had before.”

The Conference Board’s confidence data showed a measure of present conditions increased to the highest level since September 2008. The measure of expectations for the next six months also climbed.

The share of consumers saying jobs were plentiful rose to the highest since January 2009, while those saying employment was hard to get decreased to the lowest since the same month.

Confidence slumped in August when S&P stripped the U.S. of its AAA credit rating after congressional gridlock on raising the debt limit almost forced a government shutdown and brought the nation to the brink of default.

Debt Limit

A similar battle may be on the horizon. The Obama administration will ask Congress to increase federal borrowing authority by $1.2 trillion as the nation approaches the debt limit set by law, according to a Treasury Department official. The White House will send the request to Congress on Dec. 30, the day the debt is projected to rise to within $100 billion of the $15.194 trillion limit, the Treasury official told reporters today on condition of anonymity.

Americans will be helped by Congress’ decision last week to pass a two-month payroll tax cut extension, eight days before its scheduled expiration. Yet fiscal policy uncertainty remains as congressmen are debating measures to cut the budget deficit by $1.2 trillion over 10 years.

The labor market has gained traction in recent weeks, gasoline prices have fallen and stocks have climbed as European leaders worked to resolve their debt crisis, helping revive confidence.

Fewer Firings

Initial claims in the week ended Dec. 17 declined by 4,000 to 364,000, the lowest level since April 2008, while those continuing to receive benefits fell by 79,000 to 3.55 million in the prior week, the lowest since September 2008.

The unemployment rate in November fell to 8.6 percent, the lowest since March 2009, while the S&P 500 gained 9.2 percent from Nov. 25 through Dec. 23.

A gallon of regular unleaded gasoline fell to $3.21 on Dec. 20, the lowest since February, according to AAA, the nation’s largest automobile association.

Holiday sales will rise 3.8 percent, compared with a 5.2 percent advance last year, according to the Washington-based National Retail Federation.

As they have throughout the season, retailers continued to discount and keep stores open longer than ever. Almost all 600 Toys “R” Us U.S. locations were to remain open from Dec. 20 to Christmas Eve -- or 112 hours straight.

“We took a number of actions to drive our business, including running effective promotions across multiple channels,” Brian Dunn, chief executive officer at Best Buy Co., the world’s largest consumer-electronics retailer, said on a Dec. 13 conference call. “We’re excited about momentum we’ve seen in hot products like mobile phones, tables, and e-readers for the rest of the holiday season.”

--With assistance from Timothy R. Homan and Chris Middleton in Washington. Editors: Carlos Torres, Christopher Wellisz

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 cwellisz@bloomberg.net


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