Michigan Consumer Sentiment Index Rose to 82.6 in October

Confidence among U.S. consumers rose in October from the prior month to the highest level since before the last recession began five years ago.

The Thomson Reuters/University of Michigan final consumer sentiment index climbed to 82.6, the highest since September 2007, from 78.3 in September. Economists projected 83 for the measure after a preliminary October reading of 83.1, according to the median forecast of 60 economists surveyed by Bloomberg News.

Lower gasoline prices, improving property values and a drop in unemployment may be helping to boost sentiment, brightening the outlook for household purchases. Consumer spending, which accounts for about 70 percent of the economy, accelerated in the third quarter, another report showed.

“I think part of it is declining energy prices, you know we’ve seen some gradual improvement in the labor market, that may be another factor,” Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, said before the report. “Falling energy prices and a gradually improving labor market are good for spending.”

The economy grew at a 2 percent annual rate from July through September after a 1.3 percent advance in the second quarter, the Commerce Department said. Household purchases also rose at a 2 percent pace in the third quarter, up from 1.5 percent. Spending added 1.4 percentage points to growth.

“There were signs that the economy is continuing to gain strength as rising consumer confidence translated to stronger than expected consumer spending in the September quarter,” R. Roger Berrier, president and chief operating officer of Greensboro, North Carolina-based Unifi Inc., a producer of synthetic yarns, said on an earnings teleconference on Oct. 25.

Economists’ Estimates

Estimates for the confidence measure ranged from 76 to 85, according to the Bloomberg survey. The index averaged 64.2 during the last recession and 89 in the five years leading up to the 18-month economic slump that began in December 2007.

The Michigan index of consumer expectations six months from now, which more closely projects the direction of consumer spending, rose to 79 from 73.5 in September. The gauge of current conditions climbed to 88.1 from 85.7 a month ago.

Rising confidence may help lay the foundation for further spending gains. Retail sales in September and August had the best back-to-back showing since late 2010, signaling demand may be rising ahead of the year-end holidays, the most important time of the year for retailers.

Lower gasoline prices are working to shore up consumer confidence. The average nationwide price for regular gasoline at the pump declined to $3.575 a gallon on Oct. 25 from $3.60 a gallon the day before, AAA, the largest U.S. motoring organization, said yesterday on its website. That’s the lowest level since Aug. 2. Prices have dropped every day since Oct. 8, declining 6.3 percent. The pump price reached a 2012 high of $3.936 on April 4.

Labor Market

A drop in joblessness may help strengthen confidence this quarter. Last month the unemployment rate dropped to a three- year low of 7.8 percent from 8.1, according to Labor Department figures. Employment is a central theme in both President Barack Obama and Republican candidate Mitt Romney ahead of the Nov. 6 election.

Also lifting sentiment, home prices in July climbed more than forecast, according to a Sept. 25 report. The S&P/Case- Shiller index of property values in 20 cities increased 1.2 percent from July 2011, the biggest 12-month advance since August 2010.

Consumers in today’s confidence report said they expect an inflation rate of 3.1 percent over the next 12 months, compared with 3.3 percent in the prior survey. Over the next five years, Americans expected a 2.7 percent rate of inflation, compared with 2.8 percent in September.

Michigan’s sentiment reading is in line with other indicators. The Bloomberg Consumer Comfort Index reached a six- month high last week as Americans’ views of the economy were the brightest since early May.

To contact the reporter on this story: Elizabeth Dexheimer in Washington at edexheimer@bloomberg.net

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

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Michigan Consumer Sentiment Index Increased to 82.6 in October

Victor J. Blue/Bloomberg

A woman carries a shopping bag on Fifth Avenue in New York.

A woman carries a shopping bag on Fifth Avenue in New York. Photographer: Victor J. Blue/Bloomberg