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Confidence Little Changed Amid Improving Views on U.S. Economy

May 30, 2013

May 30 (Bloomberg) -- Consumer sentiment last week hovered near a five-year high as more Americans said the economy was improving and their finances were mending.

The Bloomberg Consumer Comfort Index was at minus 29.7 in the period ended May 26 compared with minus 29.4 a week earlier. The margin of error for the figure is 3 percentage points. Views on the current state of the economy matched a mid-April reading as the strongest since January 2008.

Rising home and stock values are helping bolster confidence among upper-income households as they recover losses suffered during the recession. Nonetheless, the total index has shown little forward momentum since reaching a five-year high of minus 28.9 in April, indicating those of less means are susceptible to setbacks should employment cool or gasoline costs rise.

"Sustained improvement in employment, gasoline prices and equities, which has created a modest wealth effect among consumers at the upper end of the income spectrum, has continued to support consumer confidence," said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. "Overall sentiment may stall near these levels without a commensurate increase in wages and salaries down the income ladder."

Sentiment for households earning between $75,000 and $100,000 annually reached a five-year high, climbing last week to within a point of the reading for those making even more.

Other reports over the past two weeks have corroborated last month’s pickup in comfort. The Conference Board’s confidence index rose in May to the highest level since February 2008, while the Thomson Reuters/University of Michigan sentiment gauge reached an almost six-year high this month.

 

Housing Rebound

 

The rebound in housing is one reason for the brightening moods. The S&P/Case-Shiller index of property values in 20 cities increased 10.9 percent in the year to March, the biggest 12-month gain since April 2006, a report showed this week.

The economy expanded less than previously estimated in the first quarter as slower inventory building and cutbacks in government spending overshadowed the biggest gain in consumer purchases since the end of 2010, figures from the Commerce Department showed today.

Gross domestic product rose at a 2.4 percent annualized rate, revised from the 2.5 percent pace initially reported. Household purchases climbed at a 3.4 percent pace, almost twice as fast as the prior quarter’s 1.8 percent gain.

Another report today showed more Americans filed claims for unemployment insurance payments last week as holiday closures kept five states from completing a full count. Applications for jobless benefits increased by 10,000 to 354,000 in the week ended May 25, the Labor Department said.

 

Shares Climb

 

The Standard & Poor’s 500 Index rose 0.3 percent to 1,652.65 at 9.40 a.m. in New York. It reached a record close of 1,669.16 in May 21.

Among Americans with annual incomes of $100,000 or more, the Bloomberg comfort index rose to 8.3 from 5.4 a week earlier. Those highest-income households have registered positive readings for 29 of the past 30 weeks. The gauge for consumers earning between $75,000 and $100,000 climbed to 7.4 last week from 1.2, the first back-to-back positive outcomes since November 2007.

Households earning between $50,000 and $75,000 a year lost ground for the third week, falling to minus 22.4 from minus 16.6. The gauge for those earning less than $15,000 a year was minus 53.9, an improvement from minus 57.6 a week earlier.

Rising property and stock values are helping Americans cope with an increase in payroll taxes and wage gains that have barely kept up with inflation. Without improvements in the job market, the bounce in confidence may prove temporary, said Gary Langer, president of Langer Research Associates LLC in New York, which conducts the comfort survey.

 

Need Momentum

 

"Gains in consumer sentiment merit a word of caution," Langer said. "More forward movement is much to be desired. Without it, the recovery, while clearly under way, may prove painfully slow."

Two of the comfort index’s components improved last week. The gauge on consumers’ current view about the economy climbed to minus 54.7 from minus 55, while the measure of personal finances rose to 2.8 from 1.3.

Fewer consumers said the time was right to purchase things. A measure of the buying climate fell to minus 37.3 from minus 34.4 a week earlier. The measure reached a more than five-year high of minus 31.5 three weeks ago.

 

Automakers

 

Auto manufacturers are among companies reaping the benefits of improved consumer outlook. Honda Motor Co. is on pace to post record U.S. sales this year, said Mike Accavitti, the company’s U.S. marketing chief. The Tokyo-based company’s deliveries in the U.S. gained 6 percent this year through April, to 468,650, amid improved sales of its Acura, Civic and Accord models.

"We don’t see any huge disruption or trend on the horizon," Accavitti said in an interview yesterday. "We think the market will continue to improve and Acura and Honda sales will continue to grow as we planned."

Kirkland’s Inc., a Nashville, Tennessee-based seller of home accessories and gifts, is anticipating improved consumer traffic after a drop in the first part of the year, President and Chief Executive Robert Alderson said. Still, a potential battle over the U.S. budget deficit and signals that Federal Reserve policy makers may slow stimulus measures could stall progress, he said.

"As we think about the outlook for the balance of the retail year, recent pockets of improvement in the housing market suggest a lift to consumer confidence and activity, especially for middle-income consumers where housing has traditionally been a reservoir of wealth similar to the equity and bond markets for the more affluent," Alderson said on a May 23 earnings call.

 

Survey Scope

 

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.

 

--Editors: Carlos Torres, Vince Golle

 

To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net

 

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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