Confidence among U.S. consumers jumped more than forecast in February as Americans adjusted to a higher payroll tax and signs of a recovering housing market spurred faith in the future.
The Conference Board’s index climbed to 69.6, exceeding all forecasts in a Bloomberg survey of economists, from a revised 58.4 in January, data from the New York-based private research group showed today. It was the first improvement in four months and the biggest since November 2011.
The gain in sentiment from the lowest level in more than a year signals Americans are beginning to cope with the a two percentage-point increase in the payroll tax used to fund Social Security and higher gasoline prices that are curbing disposable income. Rising home values and gains in employment may be brightening attitudes, helping to underpin spending.
“The job market is healing, we’re creating enough jobs to at least keep the unemployment rate stable,” Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, said before the report. “House prices are rising, and that’s helping to improve confidence.” Economists at Moody’s Analytics are the most accurate consumer-confidence forecasters in the two years through January, according to Bloomberg calculations.
The median forecast of 76 economists surveyed by Bloomberg projected an increase to 62. Estimates ranged from 58 to 66.5. The measure averaged 53.7 in the recession that ended in June 2009.
Federal Reserve Chairman Ben S. Bernanke today defended the central bank’s unprecedented asset purchases, saying they are supporting the expansion with little risk of inflation or asset- price bubbles.
“We do not see the potential costs of the increased risk- taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery,” Bernanke said in prepared testimony to the Senate Banking Committee in Washington. “Inflation is currently subdued, and inflation expectations appear well anchored.”
An improvement in the housing market could provide consumers relief from higher taxes and fuel costs. Another report today showed home prices in 20 U.S. cities rose in the 12 months to December by the most in more than six years, a sign the housing-market recovery is strengthening. The S&P/Case- Shiller index of property values increased 6.8 percent from December 2011, the biggest year-to-year gain since July 2006.
Purchases of new homes jumped in January to the highest level since July 2008, showing the industry will keep adding to growth in the economy, figures from the Commerce Department showed today. Sales surged 15.6 percent to a 437,000 annual pace, exceeding the highest forecast in a Bloomberg survey and following a 378,000 rate in the prior month.
Stocks held earlier gains after the reports. The Standard & Poor’s 500 Index climbed 0.5 percent to 1,495.7 at 10:07 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 1.88 percent from 1.87 percent late yesterday.
The Conference Board’s gauge of consumer present conditions improved to 63.3 in February from 56.2 in January. The measure of expectations for the next six months climbed to 73.8 from 59.9.
The share of consumers expecting more jobs to become available in the next six months rose to 16.7 percent in February from 14.4 percent the previous month.
The share of respondents who expect an increase in their income in the next six months climbed to 15.7 percent, the highest since October.
The number of respondents who said jobs are currently plentiful advanced to 10.5 percent in February from 8.5 percent. The share saying jobs are hard to get rose to 37 percent from 36.6 percent.
Buying plans were more mixed. The share forecasting they will purchase a car climbed, while intentions to buy a house or major appliances fell.
Today’s figures match other measures of consumer confidence. The Bloomberg Consumer Comfort Index’s weekly gauge rose in the week ended Feb. 17 to its highest level this year, though the gap between positive and negative expectations was little changed this month.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose in February to its highest level in three months.
Employment gains could help to sustain demand, giving consumers more money to spend. Employers hired a net 157,000 workers last month following gains of 196,000 and 247,000 in December and November, Labor Department figures show.
“Employment growth, while subpar compare to economic recoveries, has shown more recent signs of an improving pace of pickup,” said Jon E. Bortz, Chief Executive Officer of Pebblebrook Hotel Trust (PEB:US), in a fourth quarter earnings call on Feb. 22. The company invests in hotel properties located in large U.S. cities, particularly in coastal markets. “Both consumer confidence and business confidence have also been improving recently. So, all of these seem to bode well for at least a modest year of demand growth in 2013.”
Still, headwinds remain. A decrease in take-home pay from a higher payroll tax had been dragging down consumer confidence. Americans earning $50,000 a year are taking home about $80 less a month after the tax used to pay for Social Security benefits increased to 6.2 percent from 4.2 percent starting last month.
Rising retail fuel prices are also costing consumers. After falling as low as $3.22 in December, a gallon of regular unleaded gasoline at the pump now is hovering close to $3.80, according to AAA, the U.S.’ largest auto group.
As consumers try to adjust to smaller disposable incomes, spending on goods and services -- such as restaurant dining -- could slow.
“There are still some lingering political issues such as the sequestration that we believe are creating uncertainty in the marketplace,” Elizabeth A. Smith, chief executive officer of Bloomin’ Brands Inc. (BLMN:US), said in a Feb. 22 earnings call. Bloomin’ Brands owns casual dining chains including Outback Steakhouse and Carrabba’s Italian Grill. “Housing indicators are showing signs of improvement, but gas prices now seem to be rising. In addition, the payroll tax increase and inflation and other categories represent real headwinds for consumer disposable income.”
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