U.S. Economy: Sentiment Climbs to Eight-Month High

Consumer confidence rose in February to the highest level in eight months as decreasing unemployment lifted Americans’ spirits.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for the month climbed to 75.1 from 74.2 in January, in line with the median forecast of economists surveyed by Bloomberg News. Another report showed the trade gap widened in December for a second month on a jump in oil imports.

The sentiment data showed households’ perceptions of the economy and job market turned positive this month for the first time in seven years, signaling consumer spending may keep contributing to the expansion. The increase in confidence and Egyptian President Hosni Mubarak’s resignation helped stocks advance, extending a second straight weekly gain.

“At the end of the day, people spend on how they feel about their job prospects, and additional gains in confidence are likely to provide further support for spending,” said Millan Mulraine, senior U.S. strategist at TD Securities in New York, who projected the sentiment index would climb to 75.

Rising share prices may also be helping as the report showed confidence among affluent Americans, those making more than $75,000 a year, increased to the highest level since the last recession began in December 2007. The Standard & Poor’s 500 Index rose 0.6 percent to 1,329.15 at the 4 p.m. close in New York.

The median forecast of 68 economists surveyed by Bloomberg News projected the sentiment gauge would climb to 75. Estimates ranged from 71.5 to 78.5. The index averaged 89 in the five years leading up the recession that began in December 2007.

Current Conditions

The sentiment measure’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 86.8, the highest since January 2008, from 81.8 the prior month.

The index of consumer expectations six months from now decreased to 67.6 from 69.3.

Nonetheless, Americans grew more optimistic about job prospects. The report showed the share of Americans who expected unemployment to fall over the next 12 months exceeded the share of those who projected an increase by 8 points, the first positive reading in seven years and highest level since 1984, according to economists at Credit Suisse in New York.

Unemployment Declines

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. Joblessness dropped to 9.4 percent in December from 9.8 percent the previous month, in the biggest two-month decrease since 1958.

“The sharp 0.8 percent drop in the unemployment rate the past two months is resonating across consumers’ current view and future prospects for the labor market,” the Credit Suisse economists led by Neal Soss wrote in a note to clients.

Household purchases, which make up about 70 percent of the economy, grew at a 4.4 percent annual pace in the fourth quarter, the fastest since the first three months of 2006, Commerce Department figures showed Jan. 28.

Whole Foods Market Inc., the largest U.S. natural-goods grocer, this week raised its forecast for revenue and earnings for 2011 because it expects more consumer demand. The Austin, Texas-based company reported sales at stores open more than a year rose 9.1 percent in the company’s first-quarter.

Sales, Confidence

“Our results underscored signs that consumer confidence continues to improve,” Walter Robb, the grocer’s co-chief executive officer, said Feb. 9 during a conference call with analysts. Sales are “the greatest indicator of people’s confidence,” he said.

Also today, a report from the Commerce Department showed the trade deficit widened in December for a second month as the cost of imported oil climbed to the highest level in two years.

The gap grew 5.9 percent to $40.6 billion, in line with the $40.5 billion median forecast in a Bloomberg survey of economists. Excluding petroleum, the shortfall shrank to $15.3 billion, the smallest since March.

For all of 2010, the trade gap surged 43 percent, the biggest jump in a decade, as the recovery in spending led to record imports of consumer goods. At the same time, manufacturers like Caterpillar Inc. benefited from a drop in the value of the dollar that drove the biggest annual increase in exports in two decades, capped by record demand in December from China and newly industrialized Asian nations.

Growth Overseas

Asia, led by China, and Latin America are growing very fast, and exports to those regions will continue going up,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

Exports increased 1.8 percent to $163 billion, the most since July 2008, led by sales of autos, chemicals and industrial machines.

The gap in trade will probably stabilize around current levels as growing U.S. demand also draws in more imports to replenish depleted inventories, Gault said.

Imports rose 2.6 percent to $203.5 billion, the most since October 2008. The value of crude oil purchases increased to $22.5 billion from $19.8 billion. The average price per barrel of imported crude reached $79.78, the highest since October 2008.

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 at cwellisz@bloomberg.net

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