Consumer Sentiment in U.S. Climbed in March to One-Year High

Confidence among U.S. consumers unexpectedly rose in March for a seventh straight month as Americans grew more upbeat about the economy.

The Thomson Reuters/University of Michigan’s final index of consumer sentiment rose to 76.2, the highest since February 2011, from 75.3 last month. A reading of 74.5 was projected after a preliminary March figure of 74.3, according to a median forecast of 63 economists surveyed by Bloomberg News.

Employment growth, income gains and higher stock prices are helping sustain the improvement in confidence that may help lift consumer spending, which accounts for about 70 percent of the economy. At the same time, gasoline that’s increased 20 percent so far this year and currently approaching $4 a gallon, threatens to become a bigger strain on household budgets.

“There does appear to be some pent-up demand being released,” said Sean Incremona, senior economist with 4Cast Inc. in New York. “The resilience on the employment front and the higher stock market, it’s all off-setting the negative implications of higher gas prices.”

Estimates for the confidence measure ranged from 72 to 78, according to the Bloomberg survey. The index averaged 64.2 during the last recession. It averaged 89 in the five years before the 18-month economic slump that ended in June 2009.

Business Activity

Another report showed business activity in the U.S. held close to a 10-month high in March. The Institute for Supply Management-Chicago Inc. said today its barometer fell to 62.2 from 64 in February. Readings greater than 50 signal growth. Economists forecast the gauge would fall to 63, according to the median of 58 estimates in a Bloomberg survey.

Stocks trimmed gains after the figures. The Standard & Poor’s 500 Index rose less than 0.1 percent to 1,403.6 at 10:35 a.m. in New York.

The Bloomberg Consumer Comfort Index, released yesterday, was minus 34.7 in the week ended March 25, little changed from a four-year high reached two weeks earlier.

The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy big-ticket goods like cars, rose to 86 in March, also the highest since February 2011, from 83 the prior month. The preliminary March reading was 84.2.

Consumer Expectations

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, was little changed at 69.8 after a one-year high of 70.3 in February.

The improvement in sentiment is translating into more purchases. Consumer spending in the U.S. rose in February by the most in seven months, showing the biggest part of the economy is strengthening.

Purchases rose 0.8 percent, the largest gain since July, Commerce Department figures showed today in Washington. The median estimate of economists surveyed by Bloomberg called for a 0.6 percent increase. Incomes advanced less than projected, sending the saving rate to a more than two-year low.

So far, pessimism from higher fuel has been limited as the labor market improves. The number of Americans seeking unemployment benefits for the first time dropped last week to the lowest level in almost four years.

Employment Gains

Payroll growth in February capped the best six months since 2006, and the unemployment rate stayed at 8.3 percent, a three- year low.

Higher prices at the pump still pose a risk. The average cost of a gallon of regular gasoline nationwide was $3.92 on March 28, the highest in 10 months, according to AAA, the nation’s biggest motoring organization.

That was reflected in Americans’ view on inflation. Consumers in today’s confidence report said they expect an inflation rate of 3.9 percent over the next 12 months, the highest since May, compared with 3.3 percent in the February survey.

Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 3 percent rate of inflation compared with 2.9 percent in February.

“Consumers still face some headwinds, especially from rising gas prices, which could strain discretionary purchases and impacts the pace of recovery,” Howard Levine, chairman and chief executive officer at Family Dollar Stores Inc. (FDO), said in a conference call with analysts on March 28.

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

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

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