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U.S. Consumer Confidence Gains More Than Estimated as Job Market Recovers

Consumer confidence climbed more than forecast in May as Americans turned more hopeful that employment gains will be sustained, helping them cope with higher fuel and food costs.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose to 72.4, a three-month high, from a final reading of 69.8 in April, the group reported today. The gauge was projected to rise to 70, according to the median forecast of 62 economists surveyed by Bloomberg News.

Payroll gains for seven consecutive months and rising retail sales since July indicate consumer spending, the biggest part of the economy, will keep growing. At the same time, the costliest gasoline since July 2008 and bigger bills for groceries underscore the burden on households that may restrain confidence.

“Improvement in the job situation has helped stabilize confidence after the big hit due to gas prices,” said Omair Sharif, an economist at RBS Securities Inc. in Stamford, Connecticut. “High prices are still clearly weighing on sentiment. It means very gradual, modest gains in consumer spending.”

Estimates in the Bloomberg survey ranged from 66 to 75. The index averaged 89 in the five years leading up to the recession that began in December 2007.

Consumer Prices

Another report today showed the cost of living rose in April, led by increases in food and fuel costs that are starting to filter down to other goods and services. The consumer-price index increased 0.4 percent, matching the median forecast of economists surveyed by Bloomberg and following a 0.5 percent advance in March, according to figures from the Labor Department showed. Excluding volatile food and energy, the so-called core gauge rose 0.2 percent, also as projected.

Stocks retreated as shares of financial and technology companies dropped. The Standard & Poor’s 500 Index decreased 0.1 percent to 1,346.72 at 10:25 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 3.18 percent from 3.22 percent late yesterday.

The sentiment survey period is the first to reflect the May 1 news that the U.S. killed al-Qaeda leader Osama bin Laden. The death of the FBI’s most-wanted terrorist also may have helped lift sentiment.

Consumer Comfort

The Bloomberg Consumer Comfort Index fell to a six-week low in the period ended May 8, and showed the jump in gasoline prices was hurting Americans’ outlook on their finances.

That conclusion is corroborated by today’s Michigan report. The group’s index 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, fell to 80.2 from 82.5 the prior month.

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, climbed to 67.4 from 61.6, the biggest gain since September 2009. The increase was related to growing optimism about jobs as 31 percent of respondents said they had heard employment was improving, the most since 1983, according to an e-mailed note from economists at Barclays Capital Inc. in New York with access to the report.

The average price of regular fuel climbed to $3.99 on May 4, the highest since July 2008, and has exceeded $3.95 each day this month, according to AAA, the nation’s biggest motoring organization.

Inflation Expectations

Consumers in today’s confidence report said they expect an inflation rate of 4.4 percent over the next 12 months, down from 4.6 percent in the prior survey.

Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 3 percent rate of inflation, up from 2.9 percent the previous month. Longer-term price expectations had been as high as 3.2 percent in March.

Payrolls grew by 244,000 last month, the seventh straight gain, after increasing a revised 221,000 the prior month, Labor Department figures showed. Nonetheless, the jobless rate climbed to 9 percent, the first increase since November.

New York-based Coach Inc. (COH), the largest U.S. maker of luxury leather handbags, is counting on shoppers to generate higher full-priced sales as sentiment recovers. Cincinnati-based Macy’s Inc. (M), the second-largest U.S. department store chain, this week raised its annual profit forecast and said sales will rise more than it previously anticipated.

“As the consumer sentiment continues to improve we’ll be able to back off our promotion level slightly and gain some pricing power in our factory channel,” Coach’s Chairman and Chief Executive Officer Lew Frankfort said at an event in New York yesterday, referring to the company’s factory outlets.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

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