Chris Creech, a website consultant from Chapel Hill, North Carolina, said he’s feeling good enough about his job security and the economy to make an offer to buy his first home.
With sales rising at his employer, which develops websites for small businesses, “I feel a little more free to spend money instead of worrying about, ‘Will I have a job?’ ” said Creech, who is 24.
Creech’s optimism is reflected in surveys of confidence such as the Bloomberg Consumer Comfort Index, which showed that Americans’ view of the economic outlook climbed to a four-month high in September. The Thomson Reuters/University of Michigan preliminary sentiment index rose in September to the second- highest level in five years.
Improving consumer moods bolster President Barack Obama’s re-election prospects in a campaign that has been largely fought on economic issues, said Andrew Kohut, president of the Pew Research Center in Washington.
“If the public feels better about the economy, they’re going to feel better about Barack Obama,” Kohut said.
A survey by the Pew center conducted Sept. 12-16 showed Obama with a 51 percent to 43 percent lead over Republican Mitt Romney among likely voters, a bigger September gap than the last three candidates who went on to win in November. The survey of 2,192 likely voters has a margin of error of plus or minus 2.4 percentage points.
A Sept. 11-17 USA Today/Gallup poll of registered voters in the swing states of Colorado, Florida, Iowa, Michigan, Nevada, New Hampshire, New Mexico, North Carolina, Ohio, Pennsylvania, Virginia, and Wisconsin, put Obama ahead by two points, 48 percent to 46 percent.
Among the reasons for the improvement in confidence are rising stocks and property values, which boost household wealth.
The Standard & Poor’s 500 Index is up 16 percent this year, and in the week ended Sept. 14 the gauge reached its highest level since December 2007. Home prices in the second quarter rose by 2.2 percent from the previous three months, the best performance since the fourth quarter of 2005, according to S&P/Case-Shiller data.
The S&P 500 Index (SPX) fell today for a third day, its longest decline in seven weeks, as European leaders clashed on ways to stem the debt crisis and data from Germany and China signaled the global slowdown is deepening. The gauge dropped 0.2 percent to 1,456.89 at the 4 p.m. close in New York.
The value of real-estate assets owned by American households climbed by $393.2 billion from April through June for a second straight quarter, the biggest back-to-back gains in six years, according to Federal Reserve data released last week. The figures include non-profit organizations.
“People are feeling a little less negative about the economy,” Laura Tyson, an economics professor at the University of California-Berkeley who is a member of Obama’s jobs advisory board, said in a Sept. 19 interview in Washington with Bloomberg editors and reporters. “You are beginning to see people thinking more about housing in a normal way.”
The Thomson Reuters/University of Michigan gauge of expectations for six months from now, which projects the direction of household spending, climbed in September to the highest level since May.
Investors are anticipating gains in demand. Since Aug. 1, the Consumer Discretionary Select Sector SPDR Fund (XLY), which includes companies ranging from Tiffany & Co. to Best Buy Co. and McDonald’s Corp., has risen 9.6 percent, outperforming the 6 percent gain in the broader SPDR Standard & Poor’s 500 ETF Trust. (SPY)
The latest Bloomberg Consumer Comfort survey showed the gap between positive and negative expectations narrowed to minus 8 this month, the highest reading since May, as the percentage of respondents saying the U.S. was heading in the wrong direction dropped by the most in three years. The weekly comfort index had a fourth consecutive gain, reaching a seven-week high in the period ended Sept. 16.
Rising optimism undercuts Romney’s central message that Obama’s policies have failed to revive the economy, said Steve Jarding, a former Democratic pollster.
“Mitt Romney and his supporters have spent hundreds of millions of dollars saying the American economy is a failure,” said Jarding, a lecturer at Harvard University’s Kennedy School of Government. “Consumers are going in the opposite direction.”
Republican strategist Terry Holt, a former aide to President George W. Bush, says confidence remains low by historic standards, and the recent gains may prove ephemeral.
“A little bit of bad news can undermine good news pretty quickly,” Holt said. “That little bit of bad news goes back to that deep anxiety about the economy’s prospects and your kids’ future.”
The Bloomberg Consumer Comfort index reading of minus 40.8 in the week ended Sept. 16 compares with minus 21 in the final week of November 2007, the month before the recession began.
Consumer moods are still weighed down by an unemployment rate stuck above 8 percent for 43 straight months, the longest stretch in records dating back to 1948.
Not every confidence measure has risen. The Conference Board’s index decreased to 60.6 in August from 65.4 in July, the biggest drop in 10 months. This month’s figure, due tomorrow, is projected to rise to 63.2, according to the median estimate in a Bloomberg survey of economists.
Optimism is likely to improve further, said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit.
“It is going to be sustainable because the housing recovery is sustainable,” said Price, who in June and July ranked second among forecasters of retail sales based on two years of surveys, according to data compiled by Bloomberg. “People are embracing the idea that the worst is over and house prices are going up.”
Rising optimism supports the spending that accounts for 70 percent of the world’s largest economy. That will be needed at a time when manufacturing and exports are starting to cool.
“The same things that are driving confidence higher are helpful for consumer spending,” said Dean Maki, New York-based chief U.S. economist at Barclays Plc. “The burden of growth will turn more to the consumer in the second half.”
Maki, who specialized in researching household finances at the Federal Reserve from 1995 to 2000, says improvements in jobs and housing will lift confidence. A decline in unemployment to 8.1 percent in August from 9.1 percent a year earlier is a “reassuring” signal, he said.
Maki predicts household spending may accelerate to a 2.5 percent pace this quarter from a 1.7 percent rate in the prior three months, which was the slowest in a year.
Retailers counting on Americans’ better moods to help drive sales include LA-Z-Boy Inc. (LZB), a Monroe, Michigan-based maker of living-room recliners.
“We are poised to capitalize on an improving economy, particularly as housing and consumer confidence strengthens,” Kurt Darrow, chairman and chief executive officer, said in a teleconference with analysts on Aug. 22.
Another source of relief: gasoline prices have declined from a five-month high of $3.87 a gallon on Sept. 13, according to data from AAA, the nation’s largest motoring organization.
The fuel-cost squeeze helps explain why shoppers have been cautious in recent months.
Wal-Mart Stores Inc. (WMT) customers are making purchases mainly “when they need to,” said Bill Simon, the U.S. chief executive officer of the world’s largest retailer. Even so, the Bentonville, Arkansas-based chain “could have a decent Halloween season” and “a good Christmas,” he predicted in a Sept. 5 conference presentation.
For now, signs that the economy is improving are making Americans like Sheila Bennett more upbeat.
Bennett, a real-estate broker in Attleboro, Massachusetts, is so encouraged by the pickup in the housing market and the economy that she decided to renovate her home.
“I think we’re starting to go in the right direction,” said Bennett, who was visiting Washington last week to celebrate her 65th birthday with her husband. “Things are improving,” she said. “We’re seeing a difference just from last year to this year.”
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