Confidence among U.S. consumers unexpectedly increased in March from the prior month as Americans grew more optimistic about the outlook for the economy.
The Thomson Reuters/University of Michigan sentiment index advanced to a four-month high of 78.6, exceeding all estimates in a Bloomberg survey, from 77.6 in February. The median forecast was 72.6 after a preliminary March reading of 71.8.
Americans are finding relief in lower gasoline prices, a rally in the stock market and housing’s recovery, helping alleviate concern about federal spending cuts. A report earlier today showed household spending rose in February by the most in five months as income growth picked up.
“We will start to see the consumer become a little more engaged this summer and into the second half of the year,” Russell Price, senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “We are going to see some improvement in consumer confidence as we go forward and people put concerns about the sequester behind them.”
Forecasts in the Bloomberg survey ranged from 70 to 75. The index averaged 64.2 during the recession that ended in June 2009, and 89 in the five years prior to the 18-month slump.
Consumer spending, which accounts for about 70 percent of the economy, gained 0.7 percent after a 0.4 percent advance the prior month that was bigger than previously estimated, according to Commerce Department figures released earlier today. The median estimate in a Bloomberg survey of 78 economists called for a 0.6 percent rise. Incomes increased 1.1 percent, more than projected.
The Michigan survey’s current conditions index, which measures whether Americans think it’s a good time to make big investments and gauges consumers’ view of their personal finances, rose to 90.7 this month from 89 in February. The preliminary reading was 87.5.
The index of expectations six months from now, which more closely projects the direction of consumer spending, advanced to 70.8 this month from 70.2 in February. The initial reading was 61.7, the lowest since November 2011.
Other measures of confidence have shown some deterioration. Bloomberg’s Consumer Comfort Index dropped to a six-week low in the latest period. The Conference Board survey of confidence fell to 59.7 in March from 68 a month earlier, the New York-based private research group said March 26.
Labor market progress, a pickup in property values and cheaper gasoline are giving Americans the wherewithal to keep spending. Payrolls rose by 236,000 workers in February and the jobless rate dropped to a four-year low of 7.7 percent from 7.9 percent, Labor Department figures showed earlier this month.
A report this week showed home prices in 20 U.S. cities jumped 8.1 percent in the 12 months ended in January, the biggest year-over-year gain since June 2006. The S&P/Case-Shiller index of property values climbed 1 percent from December.
The average price of a gallon of regular gasoline is hovering close to $3.65, down from a recent high of $3.79 on Feb. 26, according to figures from AAA, the largest U.S. motoring group.
At the same time, workers are paying higher payroll taxes. The levy that funds Social Security reverted in January to its 2010 level of 6.2 percent from 4.2 percent. A person earning $50,000 is taking home about $83 less a month as a result.
“We saw traffic counts weaken as we moved into February, which was more challenging than the fourth quarter,” Russell C. Hammer, chief financial officer at Brown Shoe Co. in St. Louis, said on a March 15 earnings call. “Like our peers, we continue to monitor consumer activity in the wake of tax rate changes, as we settle into the sequester.”
Consumers in today’s confidence report said they expect an inflation rate of 3.2 percent over the next 12 months, compared with 3.3 percent in the prior two months. Over the next five years, Americans expected a 2.8 percent rate of inflation, the lowest in four months and down from 3 percent in February.