Growing Faith in U.S. Economy Underpins Consumer Comfort

Photographer: Victor J. Blue/Bloomberg

People walk through The Shops at Columbus Circle mall in New York. Close

People walk through The Shops at Columbus Circle mall in New York.

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Photographer: Victor J. Blue/Bloomberg

People walk through The Shops at Columbus Circle mall in New York.

Consumer confidence last week was unchanged near a five-year high as Americans had the least pessimistic views on the economy since 2008.

The Bloomberg Consumer Comfort Index held at minus 29.7 in the period ended June 2. Sentiment about the current state of the economy improved to the best level since January 2008, and opinions on personal finances were at a one-year high.

Rebounds in housing and stocks have helped upper-income Americans recover much of the wealth lost during the recession, while a drop in firings is probably making the average worker feel more secure in their jobs. At the same time, wage gains that have barely kept up with inflation and a jump in interest rates may be starting to suppress buying plans, raising concern about the outlook for spending.

“People are more certain about their own employment and wage prospects,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The rising equity and home prices are certainly having an interesting effect on upper-income Americans, who seem to have captured a portion of the recovery in overall national wealth.”

Sentiment for households earning between $75,000 and $100,000 annually reached a five-year high, eclipsing confidence among the highest income earners.

Fewer Americans filed applications for unemployment benefits last week, indicating companies are confident demand will be sustained in the face of federal budget cuts and tax increases, other figures showed today.

Fewer Claims

Jobless claims decreased by 11,000 to 346,000 in the week ended June 1 from 357,000, the Labor Department reported. The total number of people receiving benefits declined to 2.95 million. It reached a five-year low of 2.92 million two weeks ago.

Stocks rose as investors consider whether the Federal Reserve will begin scaling back stimulus. The Standard & Poor’s 500 Index climbed 0.1 percent to 1,609.98 at 9:54 a.m. in New York.

Two of the comfort index’s components improved last week. The gauge on consumers’ current view about the economy climbed to minus 53 from minus 54.7, while the measure of personal finances rose to 4.6, its best reading since April 2012, from 2.8.

Fewer consumers said the time was right to purchase needed items, as a measure of the buying climate fell to minus 40.8, a two-month low, from minus 37.3 a week earlier. The measure reached a more than five-year high of minus 31.5 four weeks ago.

Mortgage Rates

During that time, mortgage rates have skyrocketed amid concern Federal Reserve policy makers will scale back on the amount of bonds they buy each month. The rate on a 30-year fixed home loan shot up to 3.81 percent in the week ended May 30, the highest level in a year, from 3.35 percent in the week ended May 2, according to figures from Freddie Mac. It reached a record-low 3.31 percent in late November.

Other reports on buyer sentiment have followed the comfort index in showing improvement. The Conference Board’s confidence index rose in May to the highest level since February 2008, while the Thomson Reuters/University of Michigan sentiment gauge reached its highest level since July 2007.

A housing market rebound could be brightening moods. The S&P/Case-Shiller index of property values in 20 cities increased 10.9 percent in the year to March, the biggest 12-month gain since April 2006, a report showed last month.

Consumer Spending

Household purchases climbed at a 3.4 percent annualized rate in the first quarter, almost twice as fast as the prior quarter’s 1.8 percent gain. That helped the economy strengthen, with gross domestic product rising at a 2.4 percent pace compared with a 0.4 percent advance in the last three months of 2012, a Commerce Department report showed last week.

Rising property and stock values are helping Americans cope with an increase in payroll taxes, after the levy funding social security reverted to its 2010 level of 6.2 percent in January from a reduced 4.2 percent rate.

The gauge for consumers earning between $75,000 and $100,000 climbed to 8.9 last week, its highest level since November 2007, eclipsing confidence among highest wage earners. Among Americans with annual incomes of $100,000 or more, the Bloomberg comfort index retreated to 8 from 8.3 a week earlier.

Households earning between $50,000 and $75,000 a year declined for the fourth week, falling to minus 23.1 from minus 22.4.

Restaurants are among businesses struggling to overcome a tough environment for those in lower-income brackets.

Competition Intensifying

“The sluggish economy has affected consumer confidence and has led to an intensified competitive environment over the past several quarters in the restaurant sector,” said Cynthia J. Devine, chief financial officer of fast food franchise Tim Horton’s Inc. (THI) in a June 4 presentation.

Among other demographics, women’s confidence rose last week to its highest level since early January 2008, at minus 30.9. The index among whites climbed to minus 27.5, its highest since January 2008.

Seniors also grew more optimistic, with the gauge for those 65 and older rising to minus 20.4, its best in more than five years and the highest among all age groups.

Sentiment for consumers living in the West swelled 5.6 points to minus 31.1, though the Midwest remains the most confident region at minus 22.6.

The Bloomberg Consumer Comfort Index 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 margin of error for the figure is 3 percentage points.

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.

To contact the reporter on this story: Jeanna Smialek in Washington at jsmialek1@bloomberg.net

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