U.S. Michigan Consumer Sentiment Index Rises to 75 in January

Confidence among U.S. consumers rose more than forecast in January to the highest level in almost a year, on signs of improvement in the job market.

The Thomson Reuters/University of Michigan final index of consumer sentiment climbed to 75 from 69.9 at the end of December. The median estimate in a Bloomberg News survey called for 74, which matched the preliminary reading. The gauge averaged 89 in the five years leading up to the 18-month recession that ended in June 2009.

A strengthening labor market and higher stock prices may be boosting confidence, helping raise the odds that a pickup in household spending will continue into this quarter. At the same time, a sustained increase in gasoline prices and limited wage gains may restrain sentiment.

“Rising equity prices will be the primary catalyst for consumers’ better moods in the second half of January,” Aaron Smith, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “Retail gasoline prices and policy uncertainties will limit the increase in confidence.”

Estimates for sentiment in the Bloomberg survey of 63 economists ranged from 72.5 to 76. The index averaged 64.2 during the last recession.

The U.S. economy expanded less than forecast in the fourth quarter as consumers curbed spending and government agencies cut back, validating the Federal Reserve’s decision this week to keep interest rates low for a longer period.

Fourth Quarter

Gross domestic product, the value of all goods and services produced, climbed at a 2.8 percent annual following a 1.8 percent gain in the prior quarter, Commerce Department figures showed today in Washington. The median forecast of 79 economists surveyed by Bloomberg called for a 3 percent increase. Growth excluding a jump in inventories was 0.8 percent.

The Michigan survey’s index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, rose to 69.1 this month, the highest since May, from 63.6 in December.

The index of current conditions, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, increased to an almost one-year high of 84.2 from 79.6 the prior month.

Consumers in today’s confidence report said they expect an inflation rate of 3.3 percent over the next 12 months, up from 3.1 percent in December.

Over the next five years, the range tracked by Fed policy makers, Americans expect a 2.7 percent rate of inflation, the same as in December.

Fed and Inflation

The Federal Open Market Committee this week committed to holding inflation at 2 percent. “An important aspect of policy transparency is clarity about policy objectives,” Fed Chairman Ben S. Bernanke said in a Jan. 25 press conference. “Clearly communicating to the public this 2 percent goal for inflation over the longer run should help foster price stability and moderate long-term interest rates.”

Today’s report is in line with other confidence measures. The Bloomberg Consumer Comfort Index climbed to minus 46.4 in the period ended Jan. 22 from a reading of minus 47.4 the prior week.

A gallon of regular unleaded gasoline has increased since falling to a 10-month low of $3.20 in December, according to AAA, the nation’s largest automobile association. The unemployment rate in December fell to 8.5 percent, the lowest since February 2009, while the Standard & Poor’s 500 Index gained 4.8 percent so far this year through yesterday.

Sustaining Purchases

Some companies say household sentiment is boosting purchases.

“In the U.S., retail sales in the quarter were up double-digits despite the challenging but slightly improving economic environment,” John Olin, chief financial officer of Harley-Davidson Inc., told a teleconference this week after the Milwaukee-based motorcycle maker reported a fourth quarter profit on stronger demand. “Sales in the U.S. during the quarter were supported by strong product offerings, improved consumer confidence, and improved product availability.”

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