Consumer confidence increases to highest level in a year

Posted Feb. 17, 2012, at 7:36 a.m.

WASHINGTON — Consumer confidence increased for a fourth straight week to reach the highest level in a year as more households believe the economy is improving.

The Bloomberg Consumer Comfort Index rose to minus 39.8 in the period ended Feb. 14 from minus 41.7 the previous week. It marked just the third time since April 2008 that the gauge has climbed above minus 40, a reading consistent with recessions or their aftermath. The monthly expectations gauge climbed to minus 7 in February, also a 12-month high.

Sentiment among those without a job was the strongest since April 2008, showing news of payroll gains and fewer job cuts is even lifting the spirits of households that have yet to benefit from the recovery. Higher stock prices so far this year may also be giving confidence a boost, helping offset rising fuel prices.

“Rising incomes, a slower pace of firings in the economy and a modest wealth effect due to the near bull market in equities likely combined to create the conditions that sent economic pessimism to its lowest reading in over a year,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York.

Claims for jobless benefits last week unexpectedly dropped to the lowest level in four years, showing the job market is on the mend, figures from the Labor Department showed Thursday.

Applications for unemployment insurance payments decreased 13,000 in the week ended Feb. 11 to 348,000, less than the lowest forecast of economists surveyed by Bloomberg News and the fewest since March 2008. The median survey estimate projected an increase to 365,000.

Builders began work on more houses in January, and wholesale prices rose less than forecast as food and fuel prices dropped, other reports showed.

Two components of the weekly consumer comfort index improved, while the third was little changed. The measure of Americans’ views on the state of the economy rose to minus 72.1 last week from minus 76.6. An index of the buying climate increased to minus 47.4 from minus 48.4. The gauge of personal finances was at 0.2 after a reading of zero.

In a separate, forward-looking question, 23 percent of Americans said the economy was getting better, the largest share since April. Thirty percent said it was getting worse, bringing the monthly expectations gauge up to minus 7 in February from minus 19.

The weekly Bloomberg comfort index had been stuck below minus 40 since the end of February 2011. The index, which began December 1985, averaged minus 46.8 last year, compared with minus 45.7 for 2010 and minus 47.9 in 2009, the worst full-year reading on record.

Breaking out of the “recession zone” in the comfort index marked a “key milestone in its struggle to dig out of its deepest, longest downturn in a generation,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement.

Better labor and stock markets helped stoke confidence. Payrolls rose by 243,000 workers last month, the biggest gain since April, and the unemployment rate fell to a three-year low of 8.3 percent, the Labor Department said on Feb. 3. The Standard & Poor’s 500 Index this week climbed to the highest level since July.

The chance of landing a job may now be improving for out- of-work Americans. Sentiment among those not employed rose to minus 46.4 last week. Also, those with less than a high school degree were the most optimistic since December 2010.

The share of consumers citing a “poor” buying climate fell last week to the lowest level since December 2007.

Sales at retailers excluding car dealerships climbed 0.7 percent in January, the biggest gain in 10 months, data from the Commerce Department showed earlier this week.

Confidence among households in the West, where Americans are most optimistic, rose 8.6 points to minus 25.4, the highest level since May 2009. Sentiment among men was the strongest since January 2011, while Republicans were the most optimistic since July. Homeowners were the most upbeat since December 2010.

Increasing fuel costs could restrain further gains in sentiment. A gallon of regular unleaded gasoline climbed to $3.52 as of Feb. 14 from a 10-month low of $3.21 in December, according to AAA, the nation’s largest automobile association.

The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 consumers 18 years old 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.

Field work for the index is done by SSRS/Social Science Research Solutions in Media, Pa.

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