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Consumer confidence rose in May to the highest level in four years, led by gains among upper-income Americans that may contribute to a pickup in spending on expensive items like furniture and appliances.
The Thomson Reuters/University of Michigan preliminary sentiment index for May climbed to 77.8, the highest since January 2008, from 76.4 the prior month. The gauge was projected to drop to 76, according to the median forecast of 68 economists surveyed by Bloomberg News. For the first time since monthly data began in 1978, it advanced for a ninth-straight time.
A jobless rate that has dropped to the lowest level in three years and a housing market that shows signs of stabilizing may be helping lift Americans’ spirits. The unexpected gain in confidence signaled consumer purchases, which account for 70 percent of the economy, can keep expanding after growing at the fastest pace in more than a year.
“What happened to the unemployment rate is really the linchpin,” said Jonathan Basile, an economist at Credit Suisse in New York who projected confidence would rise. “When people are not as concerned about losing their jobs, they tend to be a little bit more comfortable making decisions on parting with their money.”
Stocks fell, sending the Standard & Poor’s 500 Index to a two-month low, as a slump in bank shares driven by JPMorgan Chase & Co.’s $2 billion trading loss overshadowed the unexpected increase in confidence. The 500 Index fell 0.3 percent to 1,353.39 at the 4 p.m. close in New York.
Elsewhere today, the European Commission projected the euro-region economy will return to growth in 2013, with only Spain among its 17 members remaining in recession. In China, industrial production grew in April at the slowest pace since 2009.
Estimates for the sentiment index in the Bloomberg survey ranged from 73.5 to 78. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.
Michigan’s sentiment reading for May caught up with the Bloomberg Consumer Comfort Index, which reached a four-year high a month earlier. The Bloomberg gauge has since lost momentum, falling to a three-month low last week as payroll gains slowed.
The Michigan survey’s 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 and furniture, climbed to 87.3, also a four-year high, from 82.9 the prior month.
The gain was paced by households earning $75,000 or more, the report showed. Confidence decreased for those making less.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, eased to 71.7 from an almost three-year high of 72.3 in April.
Macy’s Inc. (M), the owner of its namesake and Bloomingdale’s department stores, this week reported first-quarter profit that topped analysts’ estimates as sales at stores open at least a year advanced 4.4 percent. The Cincinnati-based retailer also boosted its same-store sales forecast to about 3.7 percent this year from a previous estimate of 3.5 percent.
Same-store sales were “clearly above what we had expected, and that makes us feel very good about the consumer,” Chief Financial Officer Karen Hoguet said during a May 9 earnings call.
The jobless rate fell to 8.1 percent in April, the lowest level since January 2009, Labor Department figures showed this month. Employers added 115,000 workers to payrolls, the fewest since October, according to the data. The divergence between the decrease in employment and smaller-than-projected gain in payrolls may explain why sentiment failed to rise for lower- income households.
“The U.S. economy is recovering but at a stubbornly slow pace,” Carl Camden, president and chief executive officer of Kelly Services Inc. (KELYA), a staffing agency, said during a May 9 earnings call. “Large companies still aren’t spending and adding jobs as quickly as would’ve been expected.”
Consumers in today’s confidence report said they expect an inflation rate of 3.1 percent over the next 12 months, the lowest this year, compared with 3.2 percent in the prior survey. Over the next five years, Americans expected a 3 percent rate of inflation, compared with a previously reported 2.9 percent in the previous report.
Another report today showed wholesale prices fell in April for the first time in four months, led by a decline in fuel costs that signals inflation may cool.
The producer price index dropped 0.2 percent after no change in March, according to data from the Labor Department. The 1.9 percent increase over the past 12 months was the smallest since October 2009.
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