Consumer Comfort in U.S. Climbs as Views on Economy Improve

Consumer sentiment climbed last week from a two-month low as Americans’ views on the economy were the least pessimistic in five years.

The Bloomberg Consumer Comfort Index increased to minus 29.4 in the period ended June 16 from minus 31.3 a week earlier. The monthly Bloomberg consumer economic expectations gauge for June held at minus 1, matching May’s reading as the best this year. Weekly measures of finance and the buying climate also gained.

Higher home values and stock prices are helping rebuild consumers’ confidence, which reached a five-year high at the end of April. At the same time, a surge in interest rates as Federal Reserve policy makers say an improving economy will trigger smaller bond purchases later this year has the potential to limit further progress.

“The sustained appreciation of home prices in many areas of the country has likely bolstered the confidence of many Americans that a gradual rebuilding of wealth is under way,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. The recent jump in interest rates “will test the recovery in the housing market, and indirectly, the general improvement in consumer confidence.”

Another report today showed jobless claims rose by 18,000 to 354,000 in the week ended June 15, according to figures from the Labor Department. The median forecast of economists surveyed by Bloomberg called for 340,000. Applications fell to a five-year low of 327,000 in late April.

Shares Fall

Stocks dropped after the Fed said it may start paring stimulus measures later this year. The Standard & Poor’s 500 Index fell 1.2 percent to 1,609.95 at 9:40 a.m. in New York.

The Bloomberg index has foreshadowed changes in other measures. After reaching a more than five-year-high in late April, the comfort gauge has failed to make further progress. The Thomson Reuters/University of Michigan sentiment index this month fell from a six-year high reached in May.

Rising shares have probably benefitted upper-income Americans. The comfort index among consumers with annual incomes of $100,000 or more jumped to 18.7, the third-highest since November 2007, compared with 8.3 a week earlier, today’s sentiment data showed.

The index for households earning between $75,000 and $100,000 fell for the second week, to 4.8 from 5.3, after reaching a five-year high at the beginning of June.

The outlook improved for the first time in six weeks for households earning between $50,000 and $75,000 a year, rising to minus 24.4 from minus 27.9.

Broad Gains

All three components of the comfort index improved last week. The measure of how Americans view the current state of the economy climbed to minus 51.2, the highest since January 2008, from minus 52.5.

More consumers said the time was right to purchase things. A measure of the buying climate rose to minus 40.7 from minus 42.1 a week earlier. A gauge of Americans’ views on personal finances rose to 3.8 from 0.6, marking the 10th consecutive positive reading.

Consumer purchases in May climbed 0.6 percent, the biggest gain in three months, following a 0.1 percent advance in April, Commerce Department figures showed last week.

High-end merchants have benefited as upper-income consumers become more optimistic. Barneys New York Inc. had a record year for sales in 2012, thanks to leather accessories and shoes, said Mark Lee chief executive officer of the New York-based apparel retailer.

Rising Sales

“Knock wood, business is great,” Lee said in a June 14 interview on Bloomberg Radio’s “The Hays Advantage.” “We’ve been growing at a pace of about 40 percent a year for the last two years and the first quarter that we just finished is strongly ahead.”

Restoration Hardware Holdings Inc. shares surged last week as the sales forecast for the Corte Madera, California-based home furnishings chain topped estimates.

Last week’s gain in sentiment also had a political dimension. Confidence among registered Democrats jumped to the highest since September 2001 amid more positive ratings of the national economy and personal finances, today’s report showed. Both individual gauges have increased 10 points since May 12.

Democrats’ comfort index reached minus 11.8 from minus 19.7 a week prior. The latest reading was 14 points higher than the group’s average in data going back to 1990, the best relative performance of any demographic. Republicans’ outlook rose to minus 30.5, marking a one-year high, from minus 34.5 the previous week.

Employment Status

Full-time workers and whites were the least pessimistic since January 2008, the report also showed. Confidence among full-time employees rose to minus 14.7 after declining for four weeks. The outlook for those working part-time and not employed worsened. Part-time workers’ views fell to a four-month low of minus 44.2. The gauge for unemployed consumers decreased for a second week to reach minus 37.8 from minus 35.6 a week prior.

The Bloomberg Consumer Comfort Index 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.