Consumer Sentiment Rises to Almost Eight-Year High
Americans’ confidence rose in December to an almost eight-year high, pointing to a pickup in holiday-related purchases.
The Thomson Reuters/University of Michigan preliminary December index of consumer sentiment increased to 93.8, the highest since January 2007, from 88.8 last month. The median projection in a Bloomberg News survey of economists called for an increase to 89.5.
Gasoline prices approaching $2.50 a gallon on average are freeing up disposable income at just the right time for merchants during their busiest time of the year. Consumer optimism about the economy, also spurred by hiring and wage growth, indicates further spending gains after a November retail sales increase that was the strongest in eight months.
“Everything is pointing in the right direction for the consumer,” said Paul Ashworth, chief U.S. economist at Capital Economics NA, who predicted the confidence index would rise to 94. “We expect a pretty good run for consumption growth in the fourth quarter. It is a big boost for the economy.”
Estimates 69 economists in the Bloomberg survey ranged from 87 to 94. The index averaged 89 in the five years before December 2007, when the last recession began, and 64.2 in the 18-month contraction that followed.
The Michigan Index’s gauge of current conditions, which measures Americans’ views of their personal finances, increased to 105.7, the highest since February 2007, from 102.7, the data showed.
The gauge of Americans’ expectations about the economy six months from now rose to 86.1 in December, also the strongest since January 2007, from 79.9 last month. It marked the biggest one-month gain since May 2013.
Consumers in the survey forecast the annual inflation rate will increase to 2.9% five years from now, rebounding from a five-year low of 2.6 % in November.
Last month’s gain was the biggest since March and followed a 0.5% advance in October that was larger than previously estimated. Demand improved in 11 of 13 major store categories.
“There aren’t many negatives,” Ashworth said. “Labor market conditions are improving rapidly. The unemployment rate is coming down. Gasoline prices are falling, which helps the consumer.”
Stronger demand has coincided with the largest advance in employment in almost three years. The 321,000 advance in November payrolls followed a 243,000 gain that was stronger than initially reported by the Labor Department. The gain in hiring extended from factories to retailers, while average hourly earnings climbed the most since June of last year.
Falling energy costs are pushing down inflation pressures. Wholesale prices in November fell more than forecast, according to a Labor Department report today. The 0.2% drop in the producer-price index followed a 0.2% gain in the prior month. Costs were up 1.4 % over the past 12 months, the smallest gain since February.
The average nationwide cost of a gallon of regular fuel was $2.60 Dec. 11, the cheapest since 2009 and down from a high this year in April of $3.70, according to figures from AAA, the nation’s biggest auto group.
Cheaper gasoline will likely benefit lower-income households the most because they spend a larger share of their pay on fuel, said Xiao Cui, a U.S. economic research analyst at Credit Suisse Securities in New York. “We should be able to see a positive effect on consumer spending in other categories outside of gasoline,” Cui said.
