Consumer Confidence Gains Due to Job Growth

Consumer confidence continued to improve in January due to positive news about potential job gains, this months Reuters/University of Michigan Survey of Consumer Sentiment says. The increase in confidence over the past five months has been substantial, with the Sentiment Index rising by one-third over the depressed August low caused by the Congressional debt debate debacle, the report for January says. Real consumer spending will post a 2.1 percent gain in 2012, the reports says.

"Despite this nascent trend toward optimism, the majority of consumers remain deeply skeptical about the prospective strength of the economy. Although twice as many anticipated an improved near-term economic outlook compared with five months ago, consumers were no more likely to expect their financial situation to improve. Moreover, confidence in government polices remains near an all-time low. Every sustained recovery in the past half century has been foreshadowed by rising confidence in government economic policies," the Thomson Reuters/University of Michigan Survey says in its analysis..

"Record numbers of consumers spontaneously reported hearing about recent employment gains, tying the 1983 record. When asked about prospective changes in unemployment, consumers were not as optimistic. Half expected an unchanged rate of unemployment, and the other half were equally divided between expecting increases and expecting declines. These expectations reflect a realism that can be met by modest future job gains."
"Personal financial prospects remained troublesome for most consumers. More households reported recent in-come declines than increases, for the 40th consecutive month. Just one-in-four households anticipated financial gains in the year ahead, but only half as many expected their inflation-adjusted income to increase during 2012," the survey said.

The Sentiment Index rose to 75.0 in the January 2012 survey, up from 69.9 in December and last January’s 74.2. This marked the fifth consecutive month that the Sentiment Index increased from its August low of 55.8. It remained below last year’s peak of 77.5 in the February 2011 survey. The Expectations Index rose to 69.1 in January from 63.6 in December but was just below last January’s 69.3. The Current Conditions Index was 84.2 in January, up from 79.6 in December and last year’s 81.8.

“Although the current level of confidence has nearly regained its highest level since the recession, this is the third consecutive year that confidence has mounted a comparable rally. All prior rallies failed when consumers concluded that the improvement they had anticipated had failed to materialize. The recent gains in confidence are now critically dependent on continued job gains. As long as modest employment gains are forthcoming, the data suggest real consumer spending will post a 2.1 percent gain in 2012. There is no symmetry between the rate of job gains and spending: lower job gains will have a disproportionate negative impact on spending," says chief economist, Richard Curtin.



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