U.S. Michigan Consumer Sentiment Increases to Five-Month High

Confidence among U.S. consumers increased more than forecast in November to the highest level in five months, indicating the biggest part of the economy may pick up.

The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 71.6 during the month from 67.7 in October. Economists projected a reading of 69.5, according to the median estimate in a Bloomberg News survey. The preliminary November figure was 69.3. Measures of the six-month outlook and current conditions both rose to five-month highs.

Optimism combined with discounts by retailers such as Wal- Mart Stores Inc. may persuade Americans to boost their spending during the holiday shopping season. Consumer purchases, which account for about 70 percent of the economy, rose for a fifth month in October as incomes increased, a separate report showed today.

“We are getting a little bit of strength right now in consumer confidence,” Scott Anderson, a senior economist at Wells Fargo Securities in Minneapolis, said before the report. “While part of it might be the unwinding from the election cycle, we’re also seeing some firming of underlying economic variables that certainly could be affecting confidence.”

Forecasts in the Bloomberg survey of 64 economists ranged from 68.4 to 71. While the sentiment index averaged 89 in the five years leading up to the recession that began in December 2007, it hasn’t reached that level since the recovery started in June 2009.

The survey’s measure 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, increased to 82.1 from 76.6 in October.

Consumer Expectations

Consumer expectations for six months from now, which more closely projects the direction of consumer spending, rose to 64.8 from 61.9, today’s confidence report showed.

Figures from the Labor Department earlier today showed initial jobless claims dropped to the lowest level since July 2008, evidence the labor market is healing. First-time filings declined by 34,000 to 407,000 in the week ended Nov. 20.

Consumer spending rose in October as a rebound in incomes lifted the biggest part of the U.S. economy at the start of the final quarter of 2010, Commerce Department figures showed.

Household purchases advanced 0.4 percent after a 0.3 percent gain in September that was larger than previously estimated. Incomes climbed 0.5 percent.

Durable Goods Orders

Orders for U.S. goods meant to last several years unexpectedly decreased in October, the Commerce Department also said. Demand for so-called durable goods dropped 3.3 percent, the biggest plunge since January 2009, after a revised 5 percent jump in September that was larger than previously estimated.

The Commerce Department said yesterday the world’s largest economy expanded at a 2.5 percent pace in the third quarter, faster than the 2 percent rate initially reported.

Consumer spending increased at a 2.8 percent annual rate from July through September, the fastest since the third quarter of 2006, according to the Commerce Department’s revised figures.

Today’s confidence survey showed consumers said they expect an inflation rate of 3 percent over the next 12 months, compared with a rate of 2.7 percent projected in October. Over the next five years, the period tracked by Fed policy makers, Americans’ forecast for inflation held at 2.8 percent.

Holiday Sales

The National Retail Federation forecast November to December sales will rise by 2.3 percent from a year ago, making it the best holiday shopping season in four years. Merchants including Wal-Mart, Target, Amazon.com Inc. and EBay Inc. will benefit as shoppers look for bargains, according to a survey issued last month by Consumer Edge Research.

Wal-Mart, the world’s largest retailer, said this week that it will match prices listed in competitors’ ads on Black Friday, the day after Thanksgiving. Savings will begin with Thanksgiving Day online specials on Nov. 25 and will run through Nov. 27, with deals on electronics, home items and apparel.

Bentonville, Arkansas-based Wal-Mart is offering free shipping to homes on almost 60,000 holiday items through its website as it vies for budget-conscious shoppers.

J.C. Penney Co., the third-largest U.S. department-store company, said the holiday shopping environment will “remain highly promotional.”

Retailers expecting stronger sales during the Christmas holiday shopping season are adding to stockpiles. Macy’s Inc. said it’s increasing inventories in anticipation consumer spending will pick up during the holidays. The second-biggest U.S. department-store chain earlier this month reported third- quarter earnings that exceeded analysts’ estimates.

“We have focused on building fresh inventories in opportunity areas to help drive our fourth-quarter sales,” Chief Financial Officer Karen Hoguet said on a conference call. “While higher than it has been, the inventory level is still well below our comp-store sales trend.”

To contact the reporter on this story: Alex Kowalski in Washington at akowalski13@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz cwellisz@bloomberg.net

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