Consumer confidence climbed last week to a four-month high as an improving job market and holiday discounts put Americans in the mood to shop. The Bloomberg Consumer Comfort Index (SPX) rose to minus 27.4 in the period ended Dec. 22, the fifth straight gain, from minus 29.4. Other figures showed applications for unemployment benefits declined more than forecast last week to 338,000. The report on sentiment also showed a gauge of whether it’s a good time to make purchases advanced to the second-highest level since 2007, signaling a pickup in the spending that accounts for almost 70 percent of the economy. Americans stayed upbeat about economic prospects amid more job opportunities, higher home values and record stock prices. “Consumers are feeling a bit more buoyant heading into the new year,” said Omair Sharif, an economist at RBS Securities Inc. inStamford, Connecticut, who projected 340,000 claims. “This isn’t surprising, given better labor-market data and low inflation.Consumer spending is going to be pretty robust in the fourth quarter.”
The Labor Department said today in Washington that first-time claims for jobless benefits dropped by 42,000 in the week ended Dec. 21. The median projection in a Bloomberg survey called for 345,000 new applications. The figures, which followed a 75,000 increase in the previous two weeks combined, underscore the difficulty in smoothing out the fluctuations that typically occur during the year-end holidays, an agency official said as the report was released.
Stock Prices
Stocks climbed, extending an all-time high for the Standard & Poor’s 500 Index. The S&P 500 increased 0.5 percent to 1,842.02 at the close in New York. All three components of the weekly Bloomberg comfort index (COMFCOMF) — finances, views of the economy and the buying climate — improved last week, today’s report showed. “Consumer sentiment has made a round trip back to pre-government shutdown highs, largely due to modestly improved economic data, including job growth and stable gasoline prices,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. Consumers are less pessimistic about the outlook for the economy after lawmakers struck a deal last week that will ease the next round of spending cuts known as sequestration. The bill marked the first bipartisan budget produced by a divided Congress in 27 years. The buying-climate index jumped to minus 31.8, the highest since the week ended May 5, from minus 35.5.
Economy View
The gauge assessing Americans’ views on the current state of the economy rose to minus 56.8 from minus 56.9 the prior week. The measure of consumers’ views on their personal finances advanced to 6.4, the highest since early August, from 4.2. In a sign the job market is making progress, confidence among the unemployed improved to its highest level since January 2008, the report showed. Payrolls expanded by 203,000 workers in November after a 200,000 gain in October, according to the latest Labor Department figures. The jobless rate fell to a five-year low of 7 percent. Record stock prices are improving household finances and building confidence, particularly among upper-income Americans. Sentiment among those making more than $100,000 a year has averaged 12.4 so far in 2013, compared with a 0.9 average last year. For those making between $50,000 and $75,000, confidence is at its strongest since May. The S&P 500 Index has surged about 29 percent so far this year.
Housing Market
Momentum in the housing market may also be helping to sustain consumers’ spirits. Purchases of new homes exceeded projections in November, holding near a five-year high, and gains in building permit applications show demand will be sustained through the start of 2014.
New-home sales declined 2.1 percent to a 464,000 annualized pace, following a revised 474,000 rate in October that was the strongest since July 2008, figures from the Commerce Department showed earlier this week. The median forecast of 75 economists surveyed by Bloomberg called for 440,000. Building permits eased by 3.1 percent in November from the prior month to a 1.01 million rate, Commerce Department data showed last week. October’s 1.04 million level was the highest since June 2008. Homebuilders such as Los Angeles-based KB Home (KBH) see a rise in interest rates as a short-term “pause” for buyer demand that won’t prevent an acceleration in the housing recovery next year, Chief Executive Officer Jeffrey Mezger said on a Dec. 19 earnings call.
Personal Spending
Retailer discounting is also brightening consumers’ moods and translating into more demand. Commerce Department data show personal spending increased 0.5 percent last month after a 0.4 percent gain in October that was larger than previously estimated. Car dealers have also seen increased demand. Auto sales climbed to a 16.3 million annualized rate in November, the highest since May 2007, according to data from Ward’s Automotive Group. The pickup in the economy helps explain why Federal Reserve officials last week decided to trim monthly bond purchases to $75 billion from $85 billion starting in January. It marked the first step toward unwinding the unprecedented stimulus that Chairman Ben S. Bernanke put in place to help the economy recover from the worst recession since the 1930s. Policy makers also said the target for the benchmark interest rate will probably remain near zero “well past” the time the jobless rate reaches 6.5 percent.
To contact the reporter on this story: Michelle Jamrisko in Washington atmjamrisko@bloomberg.net; Shobhana Chandra in Washington atschandra1@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net