The Thomson Reuters/University of Michigan final index of sentiment climbed to 77.5, exceeding the median forecast of economists surveyed by Bloomberg News, from 74.2 in January, a report today showed. The Commerce Department said the economy grew less than previously estimated in the fourth quarter as state and local governments cut back on spending.
The sentiment survey showed that for the first time in six years, households this month said they had heard more optimistic than pessimistic news on the economy, boosting the odds that consumer spending will keep bolstering the expansion. At the same time, a jump in fuel costs caused by the unrest in the Middle East threatens to keep the enthusiasm in check.
“We’ve clearly seen a bounce in the confidence numbers coincide with the gains in financial markets and the pickup in the economy, particularly the improving labor market,” said Jim O’Sullivan, global chief economist at MF Global Inc. in New York. “It was a bit of a surprise given the geopolitical tensions.”
Stocks extended earlier gains after the report. The Standard & Poor’s 500 Index rose 0.9 percent to 1,317.51 at 11:12 a.m. in New York. Treasury securities were little changed, leaving the yield on the benchmark 10-year note at 3.43 percent compared with 3.45 percent late yesterday.
Range of Estimates
The 59 estimates in the Bloomberg survey ranged from 74.8 to 78. The index averaged 89 in the five years leading up to the recession that began in December 2007 and ended in June 2009. This month’s reading was the highest since January 2008.
Today’s report mirrors other consumer gauges.
The Bloomberg Consumer Comfort Index, formerly the ABC News U.S. Weekly Consumer Comfort Index, climbed last week to the highest level since April 2008 as Americans grew less pessimistic about their finances.
The gauge was minus 39.2 in the period to Feb. 20, compared with minus 43.4 the prior week, a report yesterday showed. Forty-nine percent of those polled held positive views on their financial situation, the most in a year.
The comfort index often tracks changes in prices Americans pay at the gas pump, whereas changes in the stock prices have more of an influence on the Michigan index, according to economists. Households with yearly incomes of $75,000 or more accounted for the entire jump in confidence last month, today’s report showed.
Other Gauges
The Conference Board’s index of confidence increased to 70.4, the highest since February 2008, from 64.8 the prior month, according to Feb. 22 figures from the New York-based private research group.
A report from the Commerce Department today showed the economy grew at a 2.8 percent annual rate in the fourth quarter, down from a prior estimate of 3.2 percent. The world’s largest economy expanded at a 2.6 percent pace in the third quarter.
The sentiment survey’s current conditions gauge, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, increased to 86.9 from 81.8 the prior month.
Recent equity market performance may have played a part in boosting peoples’ attitudes. The S&P 500 Index advanced 3.9 percent this year through yesterday, extending gains from 2010.
Unemployment Drops
While employers added a fewer-than-forecast 36,000 jobs to payrolls in January, the unemployment rate unexpectedly fell to 9 percent, the lowest since April 2009, according to Labor Department figures released Feb. 4. Unemployment dropped to 9.4 percent in December from 9.8 percent the previous month.
The index of consumer expectations six months from now, which more closely projects the direction of consumer spending, increased to 71.6 from 69.3.
Macy’s Inc., the second-biggest U.S. department-store chain, is among companies counting on shoppers to keep spending. The Cincinnati-based retailer this week reported earnings that beat analysts’ estimates as it controlled costs and sold exclusive holiday gifts.
“We are entering the year with building momentum, which gives us confidence that we should have another strong year,” Karen Hoguet, chief financial officer, said on a conference call with investors on Feb. 22.
Consumers in the confidence survey said they expect an inflation rate of 3.4 percent over the next 12 months, the same as in January. Over the next five years, the period tracked by Federal Reserve policy makers, Americans surveyed said they expect prices will climb 2.9 percent, also the same as last month.
Rising gasoline prices may have restrained a further increase in sentiment. The average price of a gallon of regular gasoline at the pump was $3.29 yesterday, the highest level since October 2008, as mounting tension in the Middle East and North Africa drove up the cost of crude oil.
Source: Bloomberg By
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