Bigger paychecks are giving American consumers reason to believe again.
The University of Michigan’s preliminary consumer sentiment index for June rose to 94.6, topping all estimates in a Bloomberg survey of economists, from a reading of 90.7 last month, figures showed Friday. Households were the most upbeat about their wage prospects in seven years.
As the ranks of the unemployed shrink, the competition for skilled workers is heating up and forcing employers to boost wages to attract and retain staff. Firming confidence makes it likely the recent pickup in consumer spending, which accounts for almost 70 percent of the economy, will be sustained.
“The labor market continues to improve, and that’s probably the biggest determinant of sentiment,” said Aneta Markowska, chief U.S. economist at Societe Generale in New York, whose forecast for a rise to 93.8 was among the closest in the Bloomberg survey. People “see their employers trying to fill positions and having a difficult time -- that probably gives them a sense of having a little more pricing power.”
Stocks fell, with equities almost erasing the week’s advance, amid growing concern Greece won’t reach a deal with its creditors in time to avoid default. The Standard & Poor’s 500 Index dropped 0.7 percent to 2,094.11 at the close in New York.
The median forecast in the Bloomberg survey of 68 economists projected the sentiment index would climb to 91.2. Estimates ranged from 87.7 to 94. The gauge averaged 84.1 last year.
The Michigan sentiment survey’s index of expectations six months from now increased to 86.8 from 84.2 last month. The gauge of current conditions, which measures Americans’ views of their personal finances, rose to 106.8 in June from 100.8 a month earlier.
“The June data are consistent with a 3 percent annual growth rate in real personal consumption expenditures during 2015,” Richard Curtin, director of the Michigan Survey of Consumers, said in a statement. “The majority of consumers anticipated good times in the economy as a whole during the year ahead.”
A 3 percent gain would make 2015 the strongest year for consumer spending since 2006. It grew 2.5 percent last year.
Sustained labor-market progress should help bolster expectations for a pickup in economic activity. Employers added 280,000 jobs in May, the most in five months, after a 221,000 April advance. An increase in the number of people entering the labor force caused the jobless rate to creep up to 5.5 percent from 5.4 percent, which was the lowest since May 2008.
The Michigan survey for June showed consumers projected wages would rise 2.2 percent a year, up from an estimated 1.3 percent last month and the highest since 2008. Households held the most favorable views about the outlook for their finances since 2007.
Average pay for all civilian workers climbed 4.2 percent in the first quarter from the same period in 2014 to $22.88 an hour, Labor Department figures showed this week. That compares with a 4 percent year-over-year gain in the fourth quarter and is the strongest since July-September 2006.
Average hourly earnings reported with the Labor Department’s monthly jobs figures accelerated in May to a 2.3 percent year-over-year pace, the fastest since August 2013.
Another report Friday showed wholesale prices rose in May as the biggest jump in fuel costs in at least five years swamped muted advances in other categories.
The 0.5 percent increase in the producer-price index followed a 0.4 percent decline the prior month, according to data from the Labor Department. Costs dropped 1.1 percent over the past 12 months.
Consumer sentiment measures have been mixed this month. The Bloomberg Consumer Comfort Index decreased to 40.1 in the period ended June 7, marking a record nine weeks of declines and the lowest since November, according to data issued Thursday. Fewer Americans said now was a good time to make purchases, even as views of their personal finances improved.
At the same time, consumer spending is showing signs of life. Retail sales increased 1.2 percent last month following a 0.2 percent advance in April, Commerce Department figures showed Thursday. The May gain was broad-based with 11 of 13 major categories increasing.
Federal Reserve policy makers are counting on a rebound in growth to justify an increase this year in the benchmark interest rate for the first time since 2006. The central bankers next meet June 16-17 in Washington and will release updated economic projections.
The potential for a Fed rate hike this year has businesses such as Mooresville, North Carolina-based Lowe’s Cos. on guard for the impact on sentiment and spending.
An increase in interest rates has the potential to hurt confidence and consumers’ willingness “to invest in a new home or spend on their existing home,” Chief Financial Officer Robert Hull said at a June 10 conference hosted by financial services firm Piper Jaffray Cos.