Consumer confidence improved more than projected in August as merchant discounts and record-low interest rates help U.S. households bolster finances.
The Thomson Reuters/University of Michigan final sentiment index climbed to 74.3, a three-month high, from 72.3 in July. The gauge averaged 89 in the five years leading up to the recession. Other reports indicated manufacturing is cooling.
Incentives by companies such as General Motors Co. (GM:US) are boosting sales, just as Federal Reserve efforts to lower borrowing costs are allowing Americans to reduce debt, which may underpin consumer spending. Nonetheless, Fed Chairman Ben S. Bernanke today said additional action to spur growth remains an option because unemployment is a “grave concern.”
“Confidence is lackluster,” said Jim O’Sullivan, chief U.S. economist for High Frequency Economics Ltd. in Valhalla, New York, who projected a gain in sentiment. “It typifies the economy right now. It’s not strong, but not collapsing either.”
The Standard & Poor’s 500 Index climbed 0.2 percent to 1,402.70 at 1:19 p.m. in New York. The yield on the 10-year Treasury note fell to 1.58 percent from 1.62 percent late yesterday.
The concern with elevated joblessness is global. Euro-area unemployment rose to a record 11.3 percent in July, the same as in June after that month’s figure was revised higher, a report today showed.
In Japan, consumer prices slid at a faster pace in July and industrial production unexpectedly slumped, raising the danger that the world’s third-largest economy has slipped back into a recession.
The U.S. consumer sentiment gauge was projected to rise to 73.6, according to the median forecast of 60 economists surveyed by Bloomberg. Estimates ranged from 72 to 75.2. The index averaged 64.2 during the 18-month recession that ended in June 2009.
The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, rose to 88.7, a four-year high, from 82.7 the prior month.
The share of households with incomes of less than $75,000 that said it was a good time to buy durable goods was the highest since August 2007, according to the report.
Auto dealerships this year are getting incentives from automakers to help prop up demand. Honda Motor Co., General Motors and Toyota Motor Corp. are rewarding dealers whose sales reach thresholds they’ve set, in turn allowing the vendors to offer lower prices to potential buyers.
“It’s helped the consumer get a little bit better deal,” Paul Ritchie, owner of Hagerstown Honda in Maryland, told Bloomberg News. “When the customer needs another couple hundred dollars for their trade, we’ve got something to work with. It just makes deals possible.”
Extra efforts to meet monthly dealership goals probably helped U.S. light-vehicle sales rise 18 percent this month to 1.27 million, the average estimate of nine analysts surveyed by Bloomberg. Industry wide deliveries this year through July climbed 14 percent to 8.43 million, according to Autodata Corp. in Woodcliff Lake, New Jersey.
The sentiment report was less rosy when it came to the outlook. The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, fell to 65.1 from 65.6 in July.
That drop is more in line with other confidence measures that were depressed by more gloomy projections. The New York- based Conference Board’s index decreased to 60.6 in August, the lowest level since November, from a revised 65.4 the prior month, figures from the private research group showed this week.
The Bloomberg Consumer Comfort Index hovered close to a seven-month low last week, according to figures reported yesterday.
Concerns about looming tax changes and government budget reductions under the so-called fiscal cliff may be preventing bigger gains in sentiment. Some $600 billion of tax increases and spending cuts will take effect at the end of the year unless lawmakers act.
“A major source of uncertainty is about when the fiscal cliff will be bridged, and who will bear the burden,” Richard Curtin, chief economist for the consumer sentiment survey, said in a statement. “This uncertainty will increasingly cause consumers to become more cautious spenders.”
Among recent reports pointing to an improvement in the economy, payrolls increased in July by 163,000 workers, the most since February. At the same time, the unemployment rate rose to 8.3 percent last month, and has been above 8 percent since February 2009, the longest stretch in the post-World War II era.
Housing is also recovering. Home prices in 20 U.S. cities climbed 0.5 percent in June from a year earlier, the first increase since a tax credit boosted sales in 2010, according to the S&P/Case-Shiller index released this week. Nationally, property values jumped last quarter by the most in more than six years, the data also showed.
Manufacturing, which represents about 12 percent of the economy and was a mainstay in the early part of the recovery, shows signs of cooling.
The Institute for Supply Management-Chicago Inc. said today its business barometer fell to 53 this month from 53.7 in July. Figures greater than 50 signal expansion. Economists forecast the gauge would drop to 53.2, according to the median estimate in a Bloomberg survey.
Demand for capital goods such as machinery and communications gear dropped more in July than previously estimated, revised data from the Commerce Department also showed. The 4 percent decrease in bookings for non-military capital goods excluding aircraft exceeded the 3.4 percent drop estimated last week in the durable goods report. It remained the biggest decline since November.
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