Confidence Rises to Five-Month High as Americans Cheer Discounts

Examining the State of the U.S. Economy

Confidence ended the year on a brighter note as low prices put U.S. consumers in the holiday spirit.

The University of Michigan said Wednesday that its final sentiment index for the month climbed to 92.6, the highest since July, from 91.3 in November. The median projection in a Bloomberg survey of economists called for a reading of 92 after December’s preliminary figure of 91.8.

Cheap gasoline prices and a labor market that’s added millions of Americans to payrolls have buttressed sentiment this year, while demand picked up enough to help convince the Federal Reserve that the economy could withstand higher interest rates. The conversion of job growth into bigger wage gains will be needed in the months ahead to further boost confidence and spending, which accounts for almost 70 percent of the economy.

“The latest gain was largely due to lower inflation, which bolstered real incomes and brightened buying plans for household durables,” Richard Curtin, director of the Michigan survey, said in a statement. “Given the continued weakness in the global economy and the strong dollar, consumers can be expected to become even more demanding of price discounts in the year ahead.”

Estimates for the Michigan survey in the Bloomberg survey of 56 economists ranged from 90 to 93.4. Wednesday’s consumer sentiment figure almost reached the 92.9 average for this year, which is the highest since 2004.

Current Conditions

The sentiment survey’s current conditions index, which measures Americans’ assessment of their personal finances, rose to 108.1 in December, the highest since June, from 104.3 last month. The measure of expectations six months from now decreased to 82.7 from 82.9.

Americans anticipated an inflation rate of 2.6 percent in the next year, down from 2.7 percent in November. They expect prices also to rise 2.6 percent over the next five to 10 years, the same as the previous month. The reading for the projected long-term increase is the second-lowest in data going back to

1979.

There have been only three surveys in the past half century in which more consumers mentioned the availability of price discounts for durable goods such as autos and appliances, according to the report. Consumers were more inclined to purchase these items than at any point in the past decade.

Expectations for income gains adjusted for inflation were the strongest since 2002.

Consumer Comfort

Wednesday’s figures mesh with the weekly Bloomberg Consumer Comfort Index, which showed household attitudes were stabilizing after readings softened in mid-October. Almost one in four Americans said in December that the economy is getting better, helping give expectations a boost for a second month.

Lower fuel costs may continue to support households’ finances in the months to come, with the average price of a gallon of regular gasoline reaching $2 on Dec. 21, near a five-year low.

Cheaper gasoline would help Americans’ get more use out of their paychecks, which have shown only nascent gains in income. Those modest advances may accelerate should the labor market continue to improve. Some 2.3 million people have been added to payrolls this year, while at 5 percent, the unemployment rate is at a more than seven-year low.

The Federal Reserve cited the improved job outlook when it this month raised its benchmark interest rate for the first time since 2006. The quarter-point increase in borrowing costs was the culmination of a yearlong effort by the central bank to ready investors, consumers and companies for the end of an unprecedented era of ultra-easy money.

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