Consumer Comfort in U.S. Picks Up as Buying Climate Improves

Consumer confidence climbed to a seven-month high last week as more Americans said it was a good time to make purchases, pointing to a brighter holiday shopping season.

The Bloomberg Consumer Comfort Index rose to minus 33 in the period ended Nov. 25, the highest level since April, from minus 33.9 the previous week. It marked the highest level for a Thanksgiving week, when shoppers begin their year-end holiday gift buying, since before the recession began five years ago.

Expanded store hours combined with deals, discounts and online offers last week may have helped propel the share of Americans saying it’s a good time to spend to a seven-month high. Improving labor and housing markets will probably lift spirits further, benefiting retailers such as Target Corp. and Macy’s Inc. between now and the final shopping days before Christmas, the most important period of the year for retailers.

“Consumers started the holiday-shopping season their cheeriest since 2007, a hopeful sign for retailers in their make-or-break time of year,” said Gary Langer, president of Langer Research Associates in New York, which compiles the index for Bloomberg.

A report from the Commerce Department showed the economy in the third quarter expanded more than previously estimated as a narrower trade deficit and gains in inventory overshadowed a smaller increase in consumer spending. Gross domestic product rose at a 2.7 percent annual rate, up from a 2 percent previous estimate, the agency said. Household purchases climbed at a 1.4 percent rate, the slowest in more than a year.

Jobless Claims

Labor Department figures showed today that fewer Americans filed applications for unemployment benefits last week as the job market disruptions wrought by superstorm Sandy faded. Jobless claims dropped by 23,000 to 393,000 during the period.

Stocks climbed on optimism lawmakers will reach an agreement in budget talks. The Standard & Poor’s 500 Index rose 0.4 percent to 1,415.46 at 9:31 a.m. in New York.

The Bloomberg comfort index’s buying climate gauge rose to minus 35.4, the highest since April, from minus 38.6 the previous week. The barometer measuring Americans’ views on the state of the economy fell to minus 59.2 from minus 58.9 the prior period, finishing the best four-week run since 2008. The personal finance index was little changed at minus 4.4 from minus 4.2 the prior week.

The comfort index last week was 17.2 points better than it was during this period last year. The 14.4-point gain in the three months leading up to this holiday-shopping season was the second-biggest increase in comparable periods since 1986.

Holiday Shopping

Growing confidence may help sustain spending, which makes up more than 70 percent of the world’s largest economy. During the four-day Thanksgiving weekend, spending in stores and online rose 13 percent to $59.1 billion, according to the National Retail Federation. Last year, sales climbed 16 percent during the holiday weekend.

Of those with more disposable income to spend during the holidays, a gauge of sentiment among Americans earning $100,000 or more a year rose to 10.6, the highest level in almost two years, from 4.3 the prior week.

“Consumer comfort continued to move toward posting fresh highs as the economy continues to grow slowly,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Upper-income households in particular appear quite optimistic, likely due to the sustained gains in equity markets over the past several months. The economy will continue to gain traction despite the risks associated with a possible decline in after- tax income due to the fiscal cliff.”

Unless lawmakers act to avoid the so-called fiscal cliff, more than $600 billion in automatic tax increases and spending cuts will go into effect in 2013.

Home Prices

Improving job prospects and rising home prices may be helping to shore up household sentiment. The S&P/Case-Shiller index of property values in 20 cities advanced 3 percent in September from a year earlier. Sales of previously owned homes rose in October, according to the National Association of Realtors.

The economy added 171,000 jobs in October, exceeding the 157,000 average this year, according to data from the Labor Department.

“You’re continuing to see consumer credit quality improve, consumer spending improve,” Timothy Sloan, chief financial officer at Wells Fargo & Co. in San Francisco, said on a Nov. 14 conference call. “I think the consumer is feeling better because their house is worth more and their financial condition has improved a little bit.”

Seniors’ Optimism

Other gains in today’s report included seniors, whose confidence level rose to minus 23.8, the second-highest in five years, from minus 24.1 the prior week.

Today’s report is in line with other sentiment measures. The Conference Board’s confidence index increased to 73.7 in November, a four-year high, from 73.1 the prior month.

The Bloomberg Consumer Comfort Index, compiled by Langer Research Associates in New York, conducts telephone surveys with a random sample of 1,000 consumers 18 and older. Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate; the percentage of negative responses is subtracted from the share of positive views and divided by three. The most recent reading is based on the average of responses over the previous four weeks.

The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative. The margin of error for the headline reading is 3 percentage points.

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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