Jump in U.S. Consumer Confidence Exceeds Forecasts: Economy

Consumer Confidence
Rising consumer confidence may help sustain sales during the holiday shopping season, which accounts for as much as 40 percent of retailers' annual revenue. Photographer: David Paul Morris/Bloomberg

Consumer confidence snapped back more than forecast in November as Americans turned less pessimistic on the outlook for jobs and wages, one reason why spending has jumped at the start of the holiday season.

The Conference Board’s index increased to 56 from a revised 40.9 reading in October, the biggest monthly gain since April 2003, figures from the New York-based private research group showed today. The gauge exceeded the most optimistic forecast in a Bloomberg News survey.

The improvement in sentiment may help sustain household purchases, which account for about 70 percent of the economy, after sales climbed on Nov. 25 and Nov. 28, so-called Black Friday and Cyber Monday. Another report showing home prices continue to drop raises the risk that, without a pickup in hiring, consumers will retreat in early 2012.

“We are seeing confidence returning to the ranges it’s been in the past two years in this lukewarm recovery,” said Guy Berger, an economist at RBS Securities Inc. in Stamford, Connecticut. While the data are consistent with the gains in holiday retail sales, “it doesn’t bode for a further acceleration in spending, but more of the same,” he said.

The Conference Board’s confidence gauge climbed to the highest level since July, recovering plunges in August and October that left it at a two-year low and putting it more in line with other surveys.

Other Confidence Gauges

The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 64.1 this month, the highest since June, from 60.9 in October. The Bloomberg Consumer Comfort Index’s monthly expectations gauge climbed in November to the highest reading since July.

In Europe, the debt crisis is depressing consumer attitudes. European confidence in the economic outlook dropped more than economists projected in November as the 17-nation euro region moved closer to recession.

An index of executive and consumer sentiment in the euro area fell to 93.7 from 94.8 in October, the European Commission in Brussels said today. That’s the lowest since November 2009.

Economists at Credit Suisse said before today’s U.S. confidence report that there is a “seasonal tendency” for the Conference Board’s measure to rise in November and drop in October. The gauge has increased in 16 of the last 20 Novembers after declining in 18 of 20 Octobers.

Results of the Conference Board’s survey also reflected responses from consumers by Nov. 15, a week before the congressional supercommittee announced it failed to agree on a deficit-reduction plan.

Housing Market

At the same time, malaise in the U.S. housing market is a headwind for confidence and the consumer. Residential real estate prices dropped more than forecast in the year ended September, showing the industry at the center of the 2008 financial crisis continues to struggle, according to another report today.

The S&P/Case-Shiller index of property values in 20 cities fell 3.6 percent in September from the same month in 2010 after decreasing 3.8 percent in the year ended August, the group said today in New York. The median forecast of 32 economists in a Bloomberg survey projected a 3 percent drop.

The median projection in the Bloomberg survey called for a confidence reading of 44. Estimates of 70 economists ranged from 37 to 49.6. The index averaged 53.7 during the 18-month recession that ended in June 2009.

Shares Rise

Stocks rose after the reports, with the Standard & Poor’s 500 Index climbing 0.2 percent to 1,195.2 at the close in New York. The yield on the benchmark 10-year Treasury note rose to 2 percent from 1.97 percent late yesterday.

The Conference Board’s data showed measures of present conditions and expectations for the next six months both improved.

The percent of respondents expecting more jobs to become available in the next six months and those projecting their incomes will rise both climbed to four-month highs.

Applications for jobless benefits are close to a seven-month low. Initial claims in the week ended Nov. 19 stood at 393,000, near the 391,000 in the previous period that were the fewest since April 1, according to Labor Department figures.

“While hiring may not be improving much, at least the rate of layoffs is slowing,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose confidence forecast of 49.6 was the highest in the Bloomberg survey. “We have all this good news about Black Friday. I think you will see people move their consumer spending forecasts higher for this quarter.”

Yellen’s View

Federal Reserve Vice Chairman Janet Yellen today said the central bank has leeway to spur the U.S. recovery and reduce unemployment by purchasing more assets and clarifying its plan to sustain record-low borrowing costs.

“The scope remains to provide additional accommodation through enhanced guidance on the path of the federal funds rate or through additional purchases of longer-term financial assets,” Yellen said today. She said economic growth in the U.S. and other advanced economies “has been proceeding too slowly to provide jobs for millions of unemployed people.”

The Conference Board report showed the share of consumers who said jobs were currently plentiful climbed to the highest level since May 2009. Confidence rose in eight of nine U.S. regions.

Debt Crisis

The deepening sovereign debt crisis in Europe has also helped boost demand for yen, impeding Japan’s recovery. The jobless rate in Japan rose to 4.5 percent in October from 4.1 percent a month earlier, the nation’s statistics bureau said today.

Panasonic Corp. and TDK Corp. are cutting jobs as a yen near a post World War II high against the dollar erodes profits and the nation struggles to recover from the March earthquake that left about 19,000 people dead or missing.

Americans, meantime, spent a record $52.4 billion during the Thanksgiving weekend, kicking off the holiday shopping season. Shoppers took advantage of deals and earlier opening hours at retailers. With the monthly U.S. unemployment rate averaging 9 percent this year, the results suggest consumers with jobs remain willing to spend.

“We had massive lines in a number of places around the country last night,” Brian Dunn, chief executive officer of Best Buy Co. said by telephone Nov. 25 from a store in Eden Prairie, Minnesota.

Retail sales climbed 16 percent, and shoppers spent $398.62 on average, up from $365.34 a year earlier, according to the National Retail Federation, citing a survey from BIGresearch.

Holiday sales account for about 20 percent to 40 percent of retailers’ annual revenue, according to the National Retail Federation.

“There seems to be a bit of an exhale happening” with U.S. consumers, Ellen Davis, NRF vice president, said on a conference call Nov. 27. “They feel like it’s OK to spend a little bit more.”

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