U.S. consumer confidence rose in December
to the highest since July as lower gasoline prices gave Americans more
money to spend for the holidays, a private survey showed.
The University of Michigan’s final index of consumer sentiment rose to
91.5 from November’s 81.6 and compares with a preliminary December
reading of 88.7 two weeks ago. The jump from November was the biggest
since January 2004.
Americans were more confident about the economy as gasoline prices fell
nearly a third from highs in early September after Hurricane Katrina.
Consumers also may have been buoyed by a rally in stock prices that
boosted the benchmark Standard & Poor’s 500 Index more than 5 percent
since early November.
“Consumers are more optimistic during this holiday season, and
retailers hope this means that they will hear the ringing of cash
registers in what has been a lackluster sales period so far,” said Chris
Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. in
New York. “This augurs well for a continued expansion of the economy
next year.” The University of Michigan’s expectations index, which may
foreshadow changes in consumer spending, rose to 80.2 from 69.6 last
month. The current conditions index, which reflects Americans’
perception of their financial situation and whether it’s a good time to
buy big-ticket items like cars, rose to 109.1 from 100.2 last month.
Both the current conditions and expectations figures were the highest
since July.
Gasoline Prices
The sentiment index was expected to rise to 89, the
median of 48 estimates in a Bloomberg News survey of economists. The
17.3 percentage point jump since October, when the index hit a 13-year
low, was the biggest since the final two months of 1992.
Falling gasoline prices and rising stock indexes have given consumers
more cash to spend on gifts. Discount retailers such as Target Corp.
will post advances of as much as 4 percent in holiday sales while
department stores like Kohl’s Corp. will report gains of about 2
percent, the International Council of Shopping Centers said this week,
as retailers boosted promotions to win holiday sales.
The average retail price for a gallon of all grades of gasoline fell to
$2.25 in the week ended Dec. 19, from $3.12 the week ended Sept. 5, just
after Hurricane Katrina, Energy Department data show. The latest average
price still was 23 percent higher than a year ago.
The Standard & Poor’s 500 Index gained about 5 percent through November
and the first three weeks of December.
Consumers expect the inflation rate to average 3.1 percent over the
next five to 10 years, according to the latest Michigan survey, up from
a 3 percent rate in November.
Holiday Season
U.S. department stores are fighting to win sales in the
final stretch of the holiday season. Companies have turned to price cuts
and added incentives such as express gift wrapping to compete with
Wal-Mart Stores Inc.
“The last few weeks have been very strong,” John Barbour, president of
U.S. stores for Toys R Us Inc., said in an interview in New York on Dec.
19. “We have six more days to go and we’re feeling very good about the
holiday season that is developing.” U.S. retail sales rose 0.3 percent
in November, matching increases in the previous two month, the Commerce
Department said Dec. 13. Excluding gasoline and autos, retail sales rose
0.5 percent during the month, half the October increase.
The job market, a key impetus for consumer sentiment, is strong. The
U.S. economy added 215,000 jobs in November, the most since July, and
workers earned 3.2 percent more than a year earlier, the government said
Dec. 2.
Economic Growth
The U.S. economy, the world’s largest, grew at a 4.1
percent pace in the third quarter, compared with 3.3 percent in the
second quarter, the government reported two days ago. It’s expanded more
than 3 percent for 10 straight quarters, the longest run since the 13
quarters that ended in March 1986.
Consumer spending, which accounts for about 70 percent of the economy,
expanded at a 4.1 percent annual pace last quarter, compared with a 3.4
percent rise in the second quarter, the government said. Consumer
spending growth may slow to about 1.4 percent this quarter, reflecting
the effects of the hurricanes, according to a Bloomberg News survey of
economists.
Manufacturing is also buoyant. Manufacturing in New York state and the
Philadelphia area expanded more quickly this month, evidence that the
economy remains strong, according to Fed regional reports last week.
Fed Outlook
Fed policy makers on Dec. 13 raised their overnight lending
rate a quarter point for a 13th consecutive time and said the expansion
“appeared solid” even after the devastation caused by the three
hurricanes.
One source of concern as interest rates rise may be a slowdown in the
housing market, which is a source of home-equity financing for
consumers. November’s U.S. new home sales fell 11.3 percent to a 1.245
million annual rate, a bigger decline than expected, Commerce Department
figures showed today. The number of new homes on the market set a
record.
Sales of previously owned homes, which make up about 85 percent of the
market, fell a greater-than-expected 2.7 percent in October. The
National Association of Realtors is forecasting declines next year in
existing and new home sales from records in 2005.
“If housing begins to weaken enough that home prices stop rising, then
that’s about it for consumers, because it will be more and more
difficult to take equity out of those homes,” said Christopher Low,
chief economist at FTN Financial in New York, during a Dec. 21
interview.
