Consumer Comfort in U.S. Improves to Highest Level in Five Years

Consumer sentiment climbed for a fourth straight week, reaching the highest level in more than five years as Americans grew more upbeat about their finances.

The Bloomberg Consumer Comfort Index improved to minus 27.3 in the period ended July 7, its highest level since January 2008, from minus 27.5 a week earlier. A measure of personal finances increased to the second-strongest reading since April 2008, while the buying climate gauge rose to a nine-week high.

“The slow, steady improvement in job gains and a slower pace of firings bolstered the confidence of Americans in the durability of the recovery,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The durability of the recovery should permit consumer confidence to hold near these levels.”

Higher property values and further gains in the stock market are boosting Americans’ spirits and helping propel big-ticket purchases such as new cars. At the same time, the improvement in sentiment is occurring among those who are better off financially rather than lower-income households.

Stocks jumped, sending the Standard & Poor’s 500 Index to a record high, after Federal Reserve Chairman Ben S. Bernanke backed sustained stimulus. The S&P 500 rose 1.1 percent to 1,670.46 at 9:34 a.m. in New York.

Another report today showed more workers than forecast filed applications for unemployment benefits last week. First-time jobless claims rose 16,000 to a two-month high of 360,000 in the week ended July 6. Swings in weekly figures are typical in July as auto plants close for annual retooling.

Personal Finances

The gain in sentiment last week was spurred by more optimism about personal finances and shopping. The Bloomberg gauge of finances rose to 6.1 from 4.4, while the buying climate index increased to minus 33.5 from minus 34.9 a week earlier as more consumers said the time was right to buy things.

The measure of Americans’ views of the current state of the economy deteriorated for a third week, to minus 54.5 from minus 51.9 the prior period. A reading four weeks ago of minus 51.2 was the least pessimistic since January 2008.

The Bloomberg index has foreshadowed changes in other measures of sentiment. The Conference Board said last month that its gauge of confidence rose in June to the highest level since January 2008.

Higher-income Americans are seeing the biggest improvement in confidence, today’s report showed. The index for households earning $100,000 or more climbed to 21, matching its highest level since November 2007, from 18.9 a week earlier. For households earning $50,000 to $75,000 a year, the outlook improved to a seven-week high of minus 20.9 from minus 25.3.

Lower Income

At the other end of the income scale, those making less than $15,000 grew more pessimistic. That measure fell to minus 66.6, the lowest since January. The sentiment gap between lower-and upper-income Americans was the widest since January 2011.

“Patterns across groups show economic sentiment improving disproportionately among those who are better-off financially, leaving others behind,” Gary Langer, president of Langer Research Associates LLC in New York, which produces the comfort data for Bloomberg, said in a statement.

What’s more, confidence is improving more among full-time workers than part-time employees, more among those with an advanced education and more among homeowners than renters.

Full-time workers were the least pessimistic since November 2007, with their comfort index rising to minus 7.7 from minus 8.7, today’s report showed. The gap between that group and those who work part-time is the widest since December 2011.

June Employment

Labor Department data last week showed the economy added 195,000 workers for a second month in June. The figures also showed hourly earnings in the 12 months to June rose by the most since July 2011.

“We continue to be encouraged by some near-term trends, levels of disposable income are increasing, unemployment rates are falling and consumer confidence is rising,” David Dudick, a senior vice president at General Mills Inc., said at investor day teleconference on July 10.

The Minneapolis-based company, which manufactures and markets consumer foods, said it expects to build on momentum from fiscal year 2013 and projects net sales will rise in the low single digits during fiscal 2014.

An improving housing market helped boost sentiment among property owners. The confidence index was minus 18.1 among homeowners, its highest since December 2007, from minus 21.3 a week prior. The outlook among renters declined for a second week, to minus 44.2 from minus 38.2, marking the largest gap between homeowners and renters since May 2012.

Home Prices

The S&P/Case-Shiller index of property values in 20 cities increased 12.1 percent in April from the same month in 2012, the biggest year-over-year gain since March 2006, a report last month showed. Purchases of new homes jumped in May to five-year high, Commerce Department figures showed last month.

Sentiment of Americans with a college degree climbed last week, while confidence deteriorated among those with a high school diploma, generating the widest gap since February.

Today’s report indicates confidence is continuing to grow on both sides of the political spectrum. Democrats last week were the least pessimistic since August 2001. Optimism among registered Republicans was the highest since November 2008, when Barack Obama was first elected president.

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.

Before it's here, it's on the Bloomberg Terminal.