Consumer Sentiment in U.S. Rose in June From Month Earlier

Consumer sentiment improved in June as higher stock prices and an improving labor market helped bolster Americans' views of the economy.

The Thomson Reuters/University of Michigan’s final sentiment index climbed to 82.5 from 81.9 in May. Economists surveyed by Bloomberg projected an increase to 82 after a preliminary June reading of 81.2.

More employment opportunities, record stock prices and improved property values are giving consumers cause for enthusiastic attitudes, reducing the odds that consumers will retrench. At the same time, Americans are paying more at gas pumps and grocery-store checkout lines, underscoring the need for bigger wage gains.

“Consumer sentiment has been steady so far this year,” Ryan Wang, an economist at HSBC Securities USA Inc. in New York. Wang is the top forecaster of the sentiment gauge in the last two years, according to data compiled by Bloomberg. “It suggests a degree of stability in the outlook for consumer spending. Households are still cautious. But the improvement in the labor market has been a positive force.”

Estimates of the 57 economists in the Bloomberg survey ranged from 80.8 to 83. The index averaged 89 in the five years before December 2007, when the last recession began, and 64.2 in the 18-month contraction that followed.

Stocks fluctuated, with the Standard & Poor’s 500 Index poised for a weekly drop, as DuPont Co. slid after cutting its earnings forecast while utilities and consumer shares led gains. The S&P 500 fell less than 0.1 percent to 1,956.42 at 10:53 a.m. in New York.

Current Conditions

The Michigan sentiment survey’s index of current conditions, which measures Americans’ views of their personal finances, increased to 96.6 this month from 94.5 in May. The preliminary reading was 95.4.

The gauge of expectations six months from now was little changed at 73.5 after 73.7 the prior month. The initial reading was 72.2 for June.

Other measures of consumer sentiment have improved this month. The Conference Board’s index climbed to 85.2, the strongest reading since January 2008, from 82.2 in May, the New York-based private research group reported earlier this week.

The Bloomberg Consumer Comfort Index last week held near its 2014 high as views on the economy were the second-strongest since 2008.

Employment Prospects

Better job prospects are a bright spot for consumers. Payrolls increased by 217,000 in May after a 282,000 gain in April, according to Labor Department data. It marked the fourth straight month employment climbed by more than 200,000, the first time that’s happened since early 2000.

Demand has been strong enough to reduce the number of dismissals. Jobless claims last week fell to a one-month low, the Labor Department said yesterday. Firings are hovering just above their pre-recession lows as companies grow confident the economy will snap back from the worst contraction in five years.

Even with the gains in hiring, worker pay increases have been more subdued. Wages and salaries have increased 2.5 percent year-over-year on average since the recession ended in June 2009, compared with 4.3 percent in the previous expansion.

Faster income growth would help ease the sting of higher food and fuel costs. The average cost of a gallon of regular gasoline was $3.68 yesterday, up from $3.18 in November and near the one-year high of $3.70, according to AAA, the largest U.S. auto group.

Consumer Prices

A report from the Labor Department on June 17 showed prices paid by consumers for food climbed 0.5 percent in May, the most since August 2011.

Today’s sentiment survey showed that “the biggest concerns were focused on expected wage growth, which most households expected would not exceed the inflation rate, meaning that nearly half of all households anticipated declining living standards.”

Sentiment has been underpinned by improving property values, and a drop in mortgage rates since the start of the year is helping drive home sales. Purchases jumped 18.6 percent in May, the largest one-month surge since January 1992, to a six-year high of 504,000 at an annualized pace, according to figures from the Commerce Department.

Stronger demand is welcome news for Lennar Corp., the biggest U.S. homebuilder by stock-market value, which saw second quarter revenue climbed 27 percent to $1.6 billion.

“We continue to believe that the fundamental drivers of improvement in the housing market remain a steadily improving economy with a slowly improving employment picture,” Lennar’s chief executive officer, Stuart Miller, said on a June 26 earnings call. As the picture improves, he said, it will unlock “pent up demand while supplies remain constrained to meet that demand.”

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