U.S. Michigan Consumer Sentiment Index Rose to 74.5

Consumer Spending in U.S. Increases as Incomes Climb
Bookings for goods like computers and communications gear climbed 2.6 percent after a 3.6 percent decline in October that was smaller than previously estimated. Photographer: George Frey/Bloomberg

Confidence among U.S. consumers climbed to a six-month high in December, coinciding with a pickup in holiday sales and fewer job cuts.

The Thomson Reuters/University of Michigan final index of consumer sentiment for the month rose to 74.5, matching the median estimate in a Bloomberg News survey, from 71.6 in November. The preliminary December reading was 74.2.

Americans have been willing to snap up holiday gifts from retailers like Wal-Mart Stores Inc. and Saks Inc. that have limited discounts. An improving job market, rising stock prices and the extension of Bush-era tax cuts may keep propelling consumer spending, which accounts for about 70 percent of the economy.

“We are going to see slow but likely steady improvements in consumer sentiment,” said David Semmens, a U.S. economist at Standard Chartered Bank in New York. “The extension of unemployment benefits and tax cuts mean that 2011 will be a better year for the U.S. consumer.”

Estimates for the confidence measure ranged from 71 to 76.7, according to the Bloomberg survey of 59 economists. The index averaged 89 in the five years leading up to the recession that began December 2007.

Separate data from the Commerce Department showed spending by consumers increased in November for a fifth month. Household purchases rose 0.4 percent after a 0.7 percent increase in October that was almost twice as large as previously estimated. Incomes climbed 0.3 percent.

Business Equipment

Orders for U.S. capital equipment rebounded in November, signaling a slowdown in business investment may be less pronounced than some economists projected, another report showed.

Bookings for goods like computers and communications gear climbed 2.6 percent after a 3.6 percent decline in October that was smaller than previously estimated, the Commerce Department said. Total orders dropped 1.3 percent, depressed by volatile demand for aircraft, and bookings excluding transportation equipment rose more than forecast.

The Labor Department today reported a 3,000 decrease in initial jobless claims to 420,000 last week.

Builders sold fewer new homes than forecast in November, signaling the housing market is floundering. Purchases rose 5.5 percent to a 290,000 annual rate, the Commerce Department said today.

Stocks were little changed after the reports. The Standard & Poor’s 500 Index fell 0.1 to 1,258.07 at 10:08 a.m. in New York. Treasury securities fell, sending the yield on the benchmark 10-year note up to 3.39 percent from 3.35 percent late yesterday.

Current Conditions

The confidence survey’s gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, rose to 85.3 from 82.1 the prior month.

The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, increased to a six-month high of 67.5 from 64.8.

Consumers in the survey said they expect an inflation rate of 3 percent over the next 12 months, the same as in the November report.

Over the next five years, the figures tracked by Fed policy makers, Americans expected a 2.8 percent rate of inflation, matching the previous two months.

Retailer Promotions

Wal-Mart, the world’s biggest retailer, has raised prices on hundreds of toys this holiday season, and Saks has cut back the duration of some promotions and applied them to fewer brands than in 2009.

Rising confidence is helping lift purchases of so-called big-ticket goods. Ford Motor Co. said U.S. auto sales in December are running at a 12 million unit annual rate, and forecast sales may rise to almost 13 million next year.

“We have a high degree of confidence that 2011 is going to be a stronger sales year,” George Pipas, Ford’s sales analyst, said in a Dec. 20 briefing with reporters in Dearborn, Michigan, where the company is based. “We’re a whole lot better off than we were a year ago.”

President Barack Obama on Dec. 17 signed into law an $858 billion bill that extends for two years Bush-era tax cuts for all income levels, continues expanded jobless insurance benefits to the long-term unemployed for 13 months and reduces payroll taxes during 2011.

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