Americans’ View on Economic Outlook Climbs to Three-Month High

Americans’ views of the economic outlook improved in March to the highest level this year as stock prices rallied to a record high.

The gap between positive and negative expectations narrowed to minus 4 this month from minus 7 in February, according to results of the Bloomberg Consumer Comfort Index. The weekly measure fell for the first time in seven weeks, to minus 33.9 from minus 31.6.

Gains in the stock market and stable home prices may be making consumers feel wealthier, giving them the wherewithal to boost the spending that makes up about 70 percent of the economy. At the same time, further improvement in sentiment will be tested by higher payroll taxes and concerns government budget cuts may hold back the economic expansion.

“Americans are growing more confident about their own financial and economic situations,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “A quicker pace of employment growth, a modest wealth effect, and what looks to be a decline in gasoline prices has likely bolstered future expectations on the economy.”

Another report today showed fewer Americans than forecast filed applications for unemployment benefits last week. First-time jobless claims rose by 2,000 to 336,000 in the week ended March 16, according to data today from the Labor Department in Washington. Economists projected an increase to 340,000. The monthly average dropped to the lowest level since February 2008.

Stocks fell, after the Standard & Poor’s 500 Index approached a record high yesterday, as German manufacturing unexpectedly contracted and Cyprus’s president worked on a new plan to obtain a European bailout. The S&P 500 dropped 0.5 percent to 1,551.5 at 9:36 a.m. in New York.

Stock Prices

The S&P 500 has surged 130 percent from a 12-year low in 2009 as the economy rebounded from its worst recession in the post-World War II era. Better-than-estimated corporate earnings and the Federal Reserve’s record monetary stimulus have combined to spur the stock market. The benchmark S&P 500 rose to within two points of its 2007 record last week while the Dow Jones Industrial Average reached an all-time high.

Today’s comfort report showed the weekly buying-climate index decreased to minus 42.2 from minus 38.4 the prior week. The measure of Americans’ views on the current state of the economy cooled to minus 59.5 from minus 57.8, while the gauge of personal finances fell to 0.2 last week from 1.4 the prior period.

Based on the Bloomberg comfort survey’s monthly outlook figures, 30 percent of respondents, the most this year, said the economy is improving, while 36 percent indicated it’s about the same.

Unemployment Rate

Labor-market progress may help sustain consumer attitudes about the economy. Unemployment fell to 7.7 percent in February, the lowest in four years, from 7.9 percent in January, and employers added 236,000 jobs, the Labor Department reported earlier this month.

The recovery in the residential real estate market is helping stabilize household balance sheets. Home prices in 20 U.S. cities rose in the 12 months ended in December by the most in more than six years. The S&P/Case-Shiller index of property values increased 6.8 percent from December 2011, the biggest year-to-year gain since July 2006, after advancing 5.4 percent in November.

The housing gains are encouraging homeowners to take on more remodeling projects, boosting home-improvement retailers such as Lowe’s Cos. The Mooresville, North Carolina-based company said it is hiring 9,000 permanent part-time workers this year as it sells more appliances and bathroom fixtures.

Homeowners are giving themselves “the psychological permission to spend it and feel good about it” as property values increase, Lowe’s Chief Executive Officer Robert Niblock said on a March 13 conference call.

Gasoline Prices

Consumers are starting to feel less of a pinch to their pocketbooks from prices at the pump. The cost of a gallon of regular gasoline averaged $3.69 on March 20, down from $3.79 on Feb. 26 that was the highest in more than four months, according to figures from AAA, the largest U.S. auto group.

Further declines may help relieve some of the stress to household budgets from higher payroll taxes. The levy that funds Social Security has reverted to its 2010 level of 6.2 percent from 4.2 percent, meaning workers earning $50,000 take home about $83 less a month.

Bloomberg’s weekly comfort gauge showed confidence fell in three of four regions, led by a drop in the West. Sentiment in the South improved.

Income Groups

The figures also showed confidence among Americans who earn the least continued to climb. The sentiment gauge for those making less than $15,000 a year reached its highest level since December 2007. Comfort among those without a high school degree was at a one-year high, while sentiment was the strongest since June among those 35 to 44 years old.

The Bloomberg Consumer Comfort Index, compiled by Langer Research Associates in New York, conducts telephone surveys with a random sample of 1,000 consumers 18 and older. Each week, 250 respondents are asked for their views on the 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. The margin of error for the headline reading is 3 percentage points.

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