Confidence among U.S. consumers rose in June to the highest level since January 2008, indicating the decline in stock prices prompted by the European debt crisis has failed to weigh on sentiment.
The Thomson Reuters/University of Michigan final index of consumer sentiment increased to 76, from 73.6 in May, the group said today. The index has averaged 84.5 over the past decade.
Gains in confidence need to be accompanied by faster job growth to allow for a pickup in the consumer demand that accounts for 70 percent of the economy. Americans spent less in the first quarter than previously estimated, a government report showed today, reinforcing the Federal Reserve’s forecasts for a “moderate” pace of expansion.
“Spending growth will continue to be decent,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., who correctly forecast the index level. “It won’t be booming but it won’t be flat or declining.”
Stocks advanced as banks surged after Congress diluted a bill overhauling financial regulations. The Standard & Poor’s 500 Index climbed 0.3 percent to 1,076.76 at 4 p.m. in New York.
The Michigan gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items such as cars, rose to 85.6 in June from 81 in May.
Expectations Index
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, increased to 69.8 in June from 68.8. The index is down from 91.2 in July 2004.
Consumers and homeowners are “still a little bit fragile, given the state of the economy today and the fact that we haven’t seen robust growth, haven’t seen robust employment coming back,” Robert Niblock, chief executive officer at Lowe’s Cos Inc., the second largest home-improvement chain, said in a June 23 teleconference.
Sales at U.S. retailers unexpectedly dropped in May for the first time in eight months, the Commerce Department reported on June 11. Purchases fell 1.2 percent, led by a record plunge in demand at building-material stores that may have reflected the end of a government rebate on energy-saving appliances, according to figures from the Commerce Department.
Europe Crisis
Stocks have fallen on concern the global economic rebound may falter as European governments struggle with swelling budget deficits. The S&P 500 has dropped 12 percent from a 19-month high on April 23 through yesterday.
The Fed this week signaled that slowing inflation and Europe’s debt crisis will push an interest rate increase further into 2011. The Fed kept its benchmark rate in a range of zero to 0.25 percent and repeated a pledge to keep borrowing costs low for an “extended period.”
The central bank said the labor market is “improving gradually,” changing April’s assessment that it was “beginning to improve.” Consumer spending still “remains constrained” by joblessness and “tight credit,” it said.
Private payrolls rose by 41,000 in May, fewer than forecast, Labor Department figures showed on June 4. Overall employment climbed by 431,000, boosted by government hiring of temporary workers for the census. The jobless rate fell to 9.7 percent as discouraged workers left the labor force.
A Bloomberg survey this month showed the jobless rate will end the year at 9.5 percent and average 9.1 percent in 2011, according to the median estimate.
Inventory Restocking
Today’s revised figures for gross domestic product showed an economy that was more dependent on inventory restocking and less driven by demand from consumers and businesses.
Last quarter’s trade gap was revised to $373 billion from $368.3 billion as imports climbed more than previously estimated.
A bigger gain in inventories, now calculated at $41.2 billion rather than $33.9 billion, partly offset the slowdown in household spending and a bigger trade deficit. The new data indicate inventory restocking will contribute less to growth this quarter.
Corporate Profits
Corporate profits increased 8 percent in the first quarter, the same as in the previous three months, today’s report showed. Earnings were up 34 percent from the same time last year, the biggest year-over-year gain since 1984. The gain is one reason some economists project business investment and employment will pick up.
Manufacturers in the U.S. are reaping the benefits of the global recovery. Caterpillar Inc., the world’s largest maker of construction equipment, will see revenue rise 25 percent this year on surging demand for equipment from the mining and energy industries in developing nations, Chief Executive Officer James Owens said this week.
“We’re coming back very strongly after the recession,” Owens told reporters after a conference in Lima. “We’ll see growth in oil, gas and coal because we need energy for these rapid-growth emerging countries that are driving the need for commodities.”