Bloomberg News

Consumer Sentiment in U.S. Reaches One-Year High on Jobs Outlook: Economy

February 24, 2012

A shopper with a Steve Madden bag walks near Herald Square in New York. Photographer: Victor J. Blue/Bloomberg

A shopper with a Steve Madden bag walks near Herald Square in New York. Photographer: Victor J. Blue/Bloomberg

Confidence among U.S. consumers rose more than forecast in February, reaching a one-year high as Americans grew more upbeat about the outlook for the economy.

The Thomson Reuters/University of Michigan final index of consumer sentiment increased to 75.3 this month from 75 in January. The median estimate in a Bloomberg News survey called for 73, after a preliminary reading of 72.5. New-home sales last month were stronger than projected, another report showed.

Three straight months of faster job growth along with a stock market rally since late 2011 are helping keep Americans optimistic in the face of rising gasoline prices. Further gains in confidence may sustain the household spending that accounts for about 70 percent of the economy.

“The overwhelming fact is that the job market has gotten better,” said Bill Cheney, chief economist for John Hancock Financial Services Inc. in Boston, who projected a gain. “People are back to spending most of the additional income that they get, so as employment increases and you get some meager increases in wages, they do feed through to more spending.”

The Standard & Poor’s 500 Index rose to its highest level since June 2008, climbing 0.2 percent to 1,365.74 at the close of trading in New York. The yield on the benchmark 10-year Treasury note fell to 1.98 percent from 2 percent late yesterday.

Purchases of new homes declined 0.9 percent in January to a 321,000 annual rate from a 324,000 pace in December that was stronger than previously reported, Commerce Department figures showed in Washington. The median estimate in a Bloomberg survey called for 315,000 pace last month.

Fed Policy

Still, new-home sales are down 77 percent from their 2005 peak, a reason some Federal Reserve policy makers are seeking ways to bolster the industry that precipitated the last recession.

“Housing is a major factor in the deep downturn and sluggish recovery we’ve experienced in recent years,” Federal Reserve Bank of San Francisco President John C. Williams said today at the University of Chicago Booth School of Business’s U.S. Monetary Policy Forum in New York. “An aggregate-demand shortfall is something monetary policy can be, should be, and is addressing.”

Estimates for sentiment in the Bloomberg survey of 60 economists ranged from 71 to 76. The index averaged 64.2 during the last recession. The gauge averaged 89 in the five years before the 18-month recession that ended in June 2009.

Consumer Expectations

The Michigan survey’s index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, rose to a one-year high of 70.3 this month from 69.1 in January.

The gauge 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, decreased to 83 from 84.2 the prior month.

Escalating fuel costs still pose a risk to sentiment as they eat into households’ incomes. A gallon of regular unleaded gasoline climbed to $3.65 yesterday, the highest since Sept. 11, from $3.28 at the end of 2011, according to AAA, the nation’s largest automobile association. Fuel prices dropped to a 10- month low of $3.21 on Dec. 20.

“If the predictions come true that the gas gets to be close to $5 this summer, that is not good for our business, that’s not good for the consumer, it takes away discretionary dollars,” Mike Riccio, chief financial officer at furniture maker La-Z-Boy Inc. (LZB), said during a Feb. 22 conference call. “We got a mindful eye on that.”

Job Growth

Better job growth and reduced job cuts may provide an offset. The unemployment rate in January declined to 8.3 percent, the lowest since February 2009, while the economy generated 243,000 jobs, the most in nine months, Labor Department data showed on Feb. 3.

Higher stock prices are making Americans feel wealthier. The Dow Jones Industrial Average (INDU) rose above 13,000 this week for the first time since May 2008. The index gained 22 percent through yesterday after a recent low on Oct. 3.

The nation’s housing market is stabilizing, today’s Commerce Department figures showed. The gain in January sales brought the number of homes for sale to the lowest on record, signaling builders may not have to cutback much more.

Toll Brothers Inc. (TOL) and D.R. Horton Inc. are among builders benefiting from job growth as well as cheaper properties and record-low mortgage rates.

“We’re optimistic,” Doug Yearley, chief executive officer at Horsham, Pennsylvania-based Toll Brothers, said in a Feb. 22 interview with Bloomberg Television. “We have orders that are up significantly. We’re seeing deposits up, we’re seeing traffic up.”

To contact the reporters on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

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


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