Michigan Consumer Sentiment Unexpectedly Rose in September

Confidence among U.S. consumers unexpectedly improved in September, providing an impetus for the household spending that makes up more than 70 percent of the economy.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment climbed to 79.2 from 74.3 the prior month. The gauge was projected to fall to 74, according to the median forecast of 71 economists surveyed by Bloomberg News.

Rising share prices and home values are helping to shore up confidence in the face of higher gasoline costs. Unemployment stuck above 8 percent for more than three years is restraining optimism, one reason why the Federal Reserve decided yesterday to expand record stimulus.

“Consumer sentiment has held up,” Michelle Meyer, senior U.S. economist at Bank of America Corp. in New York, said before the report. “Sentiment, in the historical sense, is depressed, but we have not seen a deterioration recently. That goes hand- in-hand with the labor market, which has been weak but has not collapsed.”

Stocks extended gains after the report, with the Standard & Poor’s 500 Index rising 0.8 percent to 1,472.25 at 10:16 a.m. in New York. Global stocks rallied along with commodities after the Fed said it buy mortgage securities until the job market recovers.

Estimates for the confidence measure ranged from 70 to 76, according to the Bloomberg survey. The index averaged 64.2 during the last recession and 89 in the five years before the 18-month economic slump that ended in June 2009.

The Michigan survey’s index of current conditions, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, fell to 88.3 from 88.7 the prior month.

Expectations

The gauge of consumer expectations six months from now, which more closely projects the direction of consumer spending, increased to 73.4, the highest since May, from 65.1 in August.

Michigan’s sentiment reading for September jibes with the Bloomberg Consumer Comfort Index, which rose last week by the most since December.

Growing confidence could stoke spending by consumers, who reduced their pace of purchases in the April-to-June period. The spending outlook has improved in the third quarter, with retail sales increasing by 0.9 percent in August, the most in six months, according to a Commerce Department report today.

“The economy has been slowly and gradually improving,” Sue Yingzi Su, senior economist at General Motors Co., said during a Sept. 4 sales call. “Although we would hope it could increase at a faster pace, we couldn’t deny this increase. Stabilized consumer and business sentiment will be the major driver to help release the pent-up demand.”

Home Values

Rising home values and stock prices have bolstered household wealth. The Standard & Poor’s 500 Index climbed 3.8 percent this month through yesterday and was up 16 percent for the year. Home values in 20 U.S. cities increased in June for the first time since 2010, the S&P/Case-Shiller index showed Aug. 28.

At the same time, payroll growth has been too feeble to push unemployment lower. A Labor Department report last week showed that payrolls rose less than projected in August.

“We’re looking for ongoing, sustained improvement in the labor market,” Fed Chairman Ben S. Bernanke said in his press conference yesterday after the central bank announced it would buy $40 billion of mortgage debt a month and was likely to keep its benchmark interest near zero until mid-2015.

Another threat to consumers’ incomes, regular gasoline prices climbed to an average of $3.87 per gallon yesterday, up 54 cents since the start of July, according to AAA, the nation’s largest motoring organization.

Consumers in today’s confidence report said they expect an inflation rate of 3.5 percent over the next 12 months, compared with 3.6 percent in the prior survey. Over the next five years, Americans expected a 2.8 percent rate of inflation, down from 3 percent.

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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