May 9 (Bloomberg) -- Consumer sentiment last week hovered close to its highest level in more than five years, a sign the biggest part of the U.S. economy will keep expanding.
The Bloomberg Consumer Comfort Index fell to minus 29.5 in the week ended May 5 from minus 28.9 in the prior period, which was the strongest reading since January 2008. Nonetheless, households felt most upbeat about shopping since November 2007, the month before the last economic slump began.
Stock-market gains and rising home values have improved the outlook for wealthier Americans, underpinning total consumer spending, which accounts for about 70 percent of the economy. At the same time, the lagged effect of higher taxes is hurting the pocketbooks of the rest, one reason why it may be difficult for confidence to improve much more without bigger gains employment.
“Upper-income earners feel more comfortable about their finances,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “Middle- and lower-wage earners are facing difficulty adjusting” to smaller paychecks, so “consumer spending will grow at a modest pace.”
The number of Americans filing claims for jobless benefits unexpectedly dropped last week to the lowest level in more than five years, a signal employers are confident enough in the economic outlook to hold onto workers, figures from the Labor Department also showed today.
Applications for unemployment insurance payments decreased by 4,000 to 323,000 in the week ended May 4, the least since January 2008. Economists forecast 335,000 claims, according to the median estimate in a Bloomberg survey. For the first time, the average over the past month was the lowest since before the last recession began.
Stocks were little changed after the Standard & Poor’s 500 Index climbed to five successive records. The S&P 500 fell less than 0.1 percent to 1,631.82 at 9:40 a.m.in New York. Yesterday’s all-time closing high was 1,632.69.
Two of the three components of the comfort index declined last week. The gauge assessing Americans’ views on the current state of the economy fell to minus 57.8 from minus 57.2. The index measuring consumers’ views on their personal finances dropped to 0.8 from 3. Nineteen percent of survey respondents rated finances as poor, the biggest share in seven months.
The deterioration underscores the fallout from higher payroll taxes. At the beginning of 2013, the levy used to finance Social Security reverted to its 2010 rate of 6.2 percent after holding at 4.2 percent for two years. That cost about $80 per month for households earning $50,000 a year.
Today’s report also showed the index of buying conditions rose to a more than five-year high of minus 31.5 from minus 32.5.
The recovery in the housing market and advances in equity prices are boosting household wealth, brightening the outlook for sustained gains in consumer spending.
Residential real-estate prices rose in February by the most since May 2006, with the S&P/Case-Shiller index of house values in 20 cities up 9.3 percent from a year ago. U.S. stocks are in the fifth year of a bull market amid better-than-forecast corporate earnings and record stimulus by the Federal Reserve. The S&P 500 index has gained 14.5 percent this year through yesterday.
Whole Foods Market Inc., the largest natural-goods grocer in the U.S., boosted its forecast for earnings this year and said second-quarter profit climbed 20 percent. The Austin, Texas-based chain plans to triple its U.S. store count to about 1,000 as Americans are becoming more concerned with eating organic and healthy foods.
Among other encouraging spots of the comfort survey, confidence among 35 to 44 year-old consumers jumped last week to minus 17.5, the highest reading since November 2007, from minus 22.1. The measure for political independents climbed to minus 26.8, the best since December 2007.
The Bloomberg Consumer Comfort Index, compiled by Langer Research Associates in New York, conducts telephone surveys with a random sample of 1,000 consumers ages 18 and older.
Each week, 250 respondents are asked for their views on the U.S. economy, personal finances and buying climate. The percentage of negative responses is subtracted from the share of positive views and divided by three. The most recent reading is based on the average of responses over the previous four weeks.
The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative.
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