Consumer Comfort in U.S. Reaches Five-Year High as Finances Heal

Consumer sentiment jumped last week to the highest level in more than five years as record stock prices and the rebound in housing made more Americans feel the expansion will be maintained.

The Bloomberg Consumer Comfort Index climbed to minus 29.2 in the week ended April 14, the highest since January 2008, from minus 34 during the prior period. A separate gauge of the economic outlook, issued once a month, was little changed in April at minus 4.

Last week’s gain in confidence, the biggest in more than a year, was broad-based with every age group, all regions and most income brackets showing an advance, raising the odds that any slump in consumer spending will prove temporary. At the same time, the mood of those on the lower end of the pay scale remained depressed by higher taxes and a slowdown in hiring.

“Upper-income Americans continue to feel buoyant on the sustainable recovery,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The difficulties that can be observed down the income ladder reflect the significant split in the fortunes of upper-income Americans and low-income cohorts.”

Another report today showed little change in the number of Americans filing for unemployment benefits. First-time jobless claims climbed by 4,000 to 352,000 in the week ended April 13, the Labor Department said.

Stocks fell for a second day. The Standard & Poor’s 500 Index declined 0.2 percent to 1,548.55 at 9:40 a.m. in New York.

Rare Surge

Increases as large as last week’s 4.8 points, which was the biggest gain since December 2011, are relatively rare for the comfort index. Advances at least that large have only happened in 25 of the 1,400 weeks of polling.

All three comfort index components improved last week, with one crossing into the positive. The personal finances gauge rose to 1.6, its highest level since July, from minus 2.9 the prior week.

The measure assessing Americans’ views on the current state of the economy climbed to minus 54.7, the highest since late January 2008. The index of whether consumers consider it a good time to buy improved to a four-month high of minus 34.6.

“We’re on the upward curve now,” Glenna Blackwell, a 58-year-old from Great Barrington, Massachusetts, said as she browsed a Macy’s Inc. department store in downtown Washington, intent on spending.

‘Bit Better’

In the nation’s capital for business and as a tourist, Blackwell said she was “feeling a little bit better than I did a few months ago.”

So far in 2013, the Bloomberg comfort index has averaged minus 34.1, its best showing since 2007, when the gauge averaged minus 10.5.

Increasing optimism among higher-income earners led last week’s advance. Those taking home more than $50,000 per year were the least pessimistic in more than five years. Underpinning the gain, those with incomes greater than $100,000 were the most optimistic in more than two years.

Advances in the stock market and home values have helped boost confidence by increasing the wealth of asset holders.

The S&P 500 has risen 8.8 percent so far this year through yesterday, reversing the damage done by the 2007-2009 recession on its way to a record-high on April 11.

Home Prices

Real estate prices are simultaneously on the upswing. The S&P/Case-Shiller index of property values in 20 cities rose 8.1 percent in January from the same month last year, the biggest gain since June 2006, according to a report released March 26.

Homeowners surveyed for today’s comfort report said they were the most confident in a year.

“As an industry, we are seeing the best demand for our products in years, that gets tied into housing and also I think just people’s psyche is much better, and especially the more affluent consumers,” Paul Toms, chairman and chief executive officer at Martinsville, Virginia-based Hooker Furniture Corp., said on an April 15 earnings call. “Based on what’s going on in the stock market over the last three years and unemployment for professionals is, I think, relatively low, people are more confident and willing to go out and spend for big-ticket items.”

That wasn’t the case last month. Retail sales dropped in March by the most in nine months, pointing to a slowdown in spending, figures from the Commerce Department showed last week. While the disappointing results prompted economists to trim consumer-spending forecasts for the first quarter, most are still projecting a pickup from the last three months of 2012.

Second Quarter

The outlook for this quarter is less bright amid signs Americans are starting to come to terms with the increase in the payroll tax that took effect in January, and as employment cools. The levy used to fund Social Security reverted to 6.2 percent at the start of the year from 4.2 percent, and the labor market in March created the fewest jobs in nine months.

The Bloomberg Consumer Comfort Index’s monthly expectations gauge showed 36 percent of respondents, the largest share in the survey and equal to last month’s reading, said the economy was “staying the same.”

Brighter views of the expansion are being held in check as lower-income Americans manage through higher payroll-taxes and diminished employment prospects.

Today’s comfort report showed sentiment among those making less than $25,000 annually dropped. Part-time employees also grew more pessimistic.

‘Bumpy Ride’

“The question is whether consumer sentiment can maintain enough momentum to keep pushing on up,” Gary Langer, president of Langer Research Associates in New York, which compiles the index for Bloomberg, said in a statement. “Recent trends -- a down January, an up February, a mostly flat March, now this surge -- suggest a bumpy ride, but at least one that’s headed in the right direction.”

Further declines in fuel prices will take some pressure off those strapped for cash. The cost of a regular gallon of gas at the pump has dropped 26 cents since the end of February, according to data from AAA, the nation’s largest motoring club.

The Bloomberg comfort index stands in contrast to other measures that have recently soured. The Thomson Reuters/University of Michigan sentiment gauge declined in April to a nine-month low. The Conference Board’s confidence barometer fell more than forecast in March.

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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