With steady improvements in employment this year, the forecast for consumer spending in the United States is the brightest it has been since 2008. Consumer spending accounts for almost 70 percent of the economy today. Americans will be spending more as a whole due to the higher number of people employed. This will lead to a higher consumer confidence that is very beneficial to the economy. Consumers are more likely to buy more expensive items such as automobiles, homes, and appliances when they have a steady income and secure job. All that is left is determining what companies will profit the most due to the increase in consumer spending.
Consumer Confidence in U.S. Increases to Highest Since 2008
By Nina Glinski Jun 24, 2014 11:00 AM ET
Consumer confidence in the U.S. rose in June to the highest level in more than six years as an improving job market bolsters households.
The Conference Board’s index climbed to 85.2, the strongest reading since January 2008, from 82.2 in May, the New York-based private research group said today. The median projection in a Bloomberg survey of economists called for 83.5 in June.
Fewer firings, gains in employment and record stock prices are underpinning attitudes, brightening the outlook for consumer spending, which accounts for almost 70 percent of the economy. A strengthening labor market also helps brace Americans against rising costs for food and fuel that are pinching household finances.
“More and more consumers seem to recognize that there’s some improvement under way in the labor markets,” said Mark Vitner, senior economist at Wells Fargo Securities LLC in Charlotte,North Carolina, who projected an 84.4 reading for sentiment. “The job market has been slow to improve and now that things are finally picking up, we’re beginning to see that in the consumer confidence numbers.”
Estimates by 70 economists in the Bloomberg survey ranged from 81 to 86 after a previously reported 83 in May. The index averaged 53.7 in the recession that ended in June 2009.
Home Sales
Another report today showed sales of new homes rose in May by the most in 22 years, indicating the industry is rebounding from a winter-induced lull at the start of the year. Purchases jumped 18.6 percent, the biggest one-month gain since January 1992, to a 504,000 annualized pace, figures from the Commerce Department showed.
Stocks erased losses after the reports, with the Standard & Poor’s 500 Index rising 0.2 percent to 1,967.29 at 10:57 a.m. in New York.
Other confidence measures have been mixed. The Bloomberg Consumer Comfort Index rose to 37.1 in the week ended June 15, approaching the strongest level of the year. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment unexpectedly decreased to a three-month low.
The Conference Board’s forward-looking barometer of consumer expectations for the next six months rose to 85.2, the highest since August, from 83.5 a month earlier, while the gauge ofpresent conditions increased to 85.1, the strongest reading since March 2008, from 80.3.
‘Positive’ Momentum
“Expectations regarding the short-term outlook for the economy and jobs were moderately more favorable, while income expectations were a bit mixed,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement. “Still, the momentum going forward remains quite positive.”
The share of Americans who said jobs were currently plentiful rose to 14.7 percent, the highest since May 2008, from 14.2 percent. More consumers also said they expected increased employment opportunities in the coming six months.
The share of respondents who said they expected their incomes to rise in the next six months decreased to 15.9 percent in June from 18 percent a month earlier.
Payrolls climbed by 217,000 workers in May, the fourth consecutive month employment increased by more than 200,000, figures from the Labor Department showed this month. It was the first time that’s happened since early 2000. The jobless rate held at an almost six-year low of 6.3 percent.
The number of people unemployed for 27 weeks or longer dropped to 3.37 million in May from 4.35 million a year earlier, affirming Federal Reserve Chair Janet Yellen’s policies of maintaining monetary stimulus and keeping rates low.
Buying Plans
More Americans indicated in today’s confidence survey that they plan to buy automobiles, appliances and previously owned homes in the next six months.
Consumers took a break in May. A 0.3 percent increase in retail sales was smaller than projected after receipts for April were revised up to cap the strongest three months in almost two years, figures from the Commerce Department showed.
The consumer is still facing some headwinds. A gallon of unleaded gas at the pump cost $3.68 yesterday, close to a high this year of $3.70 that was reached on April 26, based on data from motoring group AAA.
‘Strong, Positive’
“From an economy and customer-shopping behavior, we are seeing strong, positive indicators,” Rodney McMullen, chief executive officer of Kroger (KR) Co., said on a June 19 earnings call. “More customers perceive the economy to be in recovery. While it is obviously welcome news, the recovery remains fragile, especially for customers on a budget.” McMullen added that customers “have exhibited less cautious spending behavior.”
Cincinnati-based Kroger, the largest U.S. supermarket chain, last week said profit this year will be more than previously forecast, helped by increased sales from its purchase of the Harris Teeter chain.
Americans are also returning to the housing market. Purchases of previously owned homes rose in May by the most in almost three years, a sign the industry is stabilizing after a weather-depressed quarter, figures from the National Association of Realtors showed yesterday.
To contact the reporter on this story: Nina Glinski in Washington at nglinski@bloomberg.net
To contact the editor responsible for this story: Carlos Torres at ctorres2@bloomberg.net Vince Golle, Mark Rohner