(Business Week) Confidence among U.S. consumers climbed in April to the highest level in a year as Americans became more upbeat about the outlook for the economy.
The Thomson Reuters/University of Michigan’s final index of sentiment increased to 76.4 from 76.2 last month. The gauge was projected to hold at the 75.7 level initially reported earlier this month, according to the median forecast in a Bloomberg News survey of economists.
Gasoline costs that have declined since reaching an 11- month high earlier in the month are giving households some relief. Job gains may be help make American more comfortable stepping up purchases, which account for about 70 percent of the economy.
“People have been spending; whether they continue to spend is a function of what happens with the labor market,” said Joseph Lavorgna, chief economist at Deutsche Bank Securities Inc. in New York. “Assuming stock prices hold up, and that’s in part because the labor data look OK, we should expect the consumer to continue to open his or her wallet.”
Another report today showed the economy expanded less than forecast in the first quarter as a smaller contribution from inventories overshadowed a pickup in consumer spending, homebuilding, and auto production. Gross domestic product rose at a 2.2 percent annual rate after a 3 percent pace, Commerce Department figures showed in Washington.
Estimates for the sentiment gauge ranged from 74 to 77 in the Bloomberg survey of 61 economists. The index averaged 64.2 during the last recession. It averaged 89 in the five years before the 18-month economic slump that ended in June 2009.
Today’s sentiment report follows yesterday’s release of the Bloomberg Consumer Comfort Index, which fell to a two-month low after reaching a four-year high on April 15. The comfort index fell to minus 35.8 from minus 31.4 a week earlier.
The Michigan index of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy big-ticket goods like cars, fell to 82.9 from 86 a month earlier. The gauge improved from the preliminary April reading of 80.6.
The gauge of consumer expectations for six months from now, which more closely projects the direction of consumer spending, increased to 72.3 this month from 69.8 in March.
The labor market has showed signs of cooling after more Americans than forecast filed for unemployment benefits last week. Jobless claims fell to 388,000 from a revised 389,00 the prior week, the Labor Department reported.
Dimmer View of Finances
Today’s report also showed that Americans were more pessimistic about their finances than in March. Views on finances weakened across all income groups, with 28 percent saying they were improved, down from 34 percent who said so last month.
Consumers in today’s confidence report said they expect an inflation rate of 3.2 percent over the next 12 months, down from 3.9 percent in March.
Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expected a 2.9 percent rate of inflation this month compared with 3 percent in March.
Along with signs of economic growth, consumers are coping with inflation in food and fuel, said Steven Burd, chief executive officer of Safeway Inc. (SWY) (SWY), a retail food and drug chain based in Pleasanton, California.
“I think there’s a recovery under way and at the end of the day I think consumers see that and, you know, consumer confidence builds,” Burd said in an April 26 earnings call. “If you can see a rise in home prices while interest rates are still low, that should actually bode well for consumer confidence in the future.”