Consumer Sentiment in U.S. Increases More Than Forecast

Michigan Consumer Sentiment Index Increased to 84.9 in November
Customers are cheered by employees as they enter the store after the grand opening of a new Wal-Mart Stores Inc. location in Torrance, California. Photographer: Patrick Fallon/Bloomberg

Confidence among U.S. consumers climbed to a five-year high in November, improving the prospects of bigger spending gains that will help spur the expansion.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose to 84.9, the fourth straight increase and the highest since July 2007, from 82.6 in October. Economists projected an initial reading of 82.9 for November, according to the median estimate of 71 economists surveyed by Bloomberg.

Stocks climbed as the report showed the employment gains, cheaper gasoline and rising home values that are lifting Americans’ spirits may translate into a pickup in purchases, which account for about 70 percent of the U.S. economy. For retailers such as Kohl’s Corp., more optimism may lay the foundation for bigger cash register receipts during the coming holiday shopping season.

“This is a slow, uneven economy that continues to mend,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York, who projected the sentiment gauge would rise to 85. “The confidence numbers reflect a little bit better job growth in the quarter and I think they reflect the news on housing that has really been pretty good.”

The Standard & Poor’s 500 Index advanced 0.2 percent to 1,379.85 at the close in New York. The S&P 500 dropped 2.4 percent this week.

Another report today showed inventories at U.S. wholesalers rose 1.1 percent in September, the most this year, after a 0.8 percent a month earlier. The median projection of economists surveyed by Bloomberg was for a 0.4 percent advance.

Third Quarter

The bigger-than-projected jump, combined with earlier reports showing gains in construction and factory stockpiles and a smaller trade deficit for the month, means the economy may have expanded at a 3.2 percent annual rate in the third quarter, according to New York-based economists for Barclays Plc and JPMorgan Chase & Co. The Commerce Department’s first estimate, issued last month, came in at 2 percent.

The 1.2 percentage-point boost would be the biggest upward revision between initial estimates since 2008 and the second-largest since 2001. Nonetheless, the news isn’t all positive as the jump in stockpiles means less need to restock shelves and warehouses this quarter, which will restrain growth, Daniel Silver, a JPMorgan Chase economist, said in a research note.

Estimates for the confidence measure ranged from 74.7 to 86, according to the Bloomberg survey. The index averaged 64.2 during the last recession and 89 in the five years leading up to the 18-month economic slump that began in December 2007.

Fiscal Cliff

Even with the gain in confidence, the so-called fiscal cliff of tax increases and government cutbacks scheduled to take effect next year serves as a reminder to households that the expansion faces hurdles.

“We know that the economy is going to be tough, but we believe that the focus on value and gifting will win over the consumer in what we expect to be, as always, a very competitive holiday season,” Kevin Mansell, chief executive officer of Menomonee Falls, Wisconsin-based retailer Kohl’s, said on a Nov. 8 earnings call.

The Michigan index of consumer expectations six months from now, which more closely projects the direction of consumer spending, increased to 80.8, the best reading since July 2007, from 79 in October. The gauge of current conditions rose to 91.3, the highest since January 2008, from 88.1 the prior month.

The Bloomberg Consumer Comfort Index also climbed last week as Americans’ ratings of the economy reached the highest level in more than four years.

Bloomberg Sentiment

The gauge rose to minus 34.4 in the period ended Nov. 4, the best reading since April, from minus 34.7 the previous week, the report showed yesterday. Twenty percent of those surveyed had a positive view of the world’s largest economy, the most since March 2008.

“As we look toward the fast approaching holiday season, we are encouraged by the recent strong gains in consumer confidence as lower gas prices, a recovering housing market and improved job reports resonate with the shopper,” Stephen Lebovitz, chief executive officer of Chattanooga, Tennessee-based shopping mall owner CBL & Associates Properties Inc., said on a Nov. 7 earnings teleconference.

Progress in the labor market and cheaper gasoline prices may be helping to shore up consumer sentiment. Employers added 171,000 workers in October, more than forecast, the Labor Department said on Nov. 2.

The average nationwide price for regular gasoline dropped to $3.46 a gallon yesterday, the cheapest since the middle of July, according to AAA, the largest U.S. motoring organization.

Household Spending

The gains in confidence have coincided with a pickup in household spending. Purchases rose 0.8 percent in September, the biggest gain in seven months, after advancing 0.5 percent in August, the Commerce Department said on Oct. 29. Retail sales in September and August had the best back-to-back showing since late 2010.

At the same time, income has been slow to pick up. Average hourly earnings climbed 1.6 percent in October from the same time last year, the smallest gain since comparable year-over-year records began in 2007, the Labor Department said on Nov. 2. Earnings for production workers rose 1.1 percent in the 12 months to October, the weakest since records began in 1965.

Disposable income, or the money left over after taxes, was little changed in September after falling 0.3 percent after adjusting for inflation, the Commerce Department said on Oct. 29. The savings rate dropped to 3.3 percent, the lowest since November, from 3.7 percent.

Today’s report showed consumers expect limited inflation. They projected prices will rise 3 percent over the next 12 months, compared with 3.1 percent in the prior survey. Over the next five years, Americans expected 2.8 percent rate of inflation, compared with 2.7 percent in the previous report.

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