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Confidence among U.S. consumers increased in December to a six-month high, coinciding with stronger holiday sales that show the economy is gathering speed.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 74.2 from 71.6 at the end of November. A Commerce Department report showed the U.S. trade deficit shrank more than forecast in October to $38.7 billion as growing economies overseas propelled exports to a two-year high.
Retailers such as Neiman Marcus Group Inc. have benefited during the biggest shopping period of the year as Americans grew more optimistic about the labor market. Treasury securities fell after the trade report signaled the U.S. economy is getting a boost from a jump in exports stemming from growing demand in markets like China, Brazil and South Korea.
“There’s a groundswell of good news right now,” said Jonathan Basile, an economist at Credit Suisse in New York. “That to me is a sign that households and businesses can make purchases with a little more confidence.”
Economists projected a December sentiment reading of 72.5, according to the median estimate in a Bloomberg News survey. Forecasts in the survey of 67 economists ranged from 69 to 76.5. The gauge averaged 89 in the five years leading up to the recession that began in December 2007.
The survey’s measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, increased to 85.7, the highest since January 2008, from 82.1 a month earlier.
Consumer Expectations
Consumer expectations for six months from now, which more closely projects the direction of consumer spending, increased to a six-month high of 66.8 from 64.8.
Stocks rose, sending the Standard & Poor’s 500 Index to the highest level since the week of Lehman Brothers Holdings Inc.’s bankruptcy. The S&P 500 gained 0.6 percent to 1,240.4 at the 4 p.m. close in New York. The yield on the 10-year Treasury note, which moves inversely to price, increased to 3.33 percent from 3.21 percent late yesterday.
Higher stock prices this month and signs tax rates will be kept from increasing may prop up Americans’ spirits. Since the end of November, the S&P 500 gained 5.1 percent. President Barack Obama this week agreed with Republicans to prolong income-tax cuts put in place by former President George W. Bush.
“Consumers are taking their cues from the stock market, and private employment is rising, despite November’s disappointing numbers,” said Ryan Sweet, a senior economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, who projected the sentiment index would rise to 74.
Holiday Forecast
The National Retail Federation forecast November to December sales will rise by 2.3 percent from the same time in 2009, making it the best holiday shopping season in four years. The ICSC said it expects December sales to rise as much as 3.5 percent compared with last year.
“I would generally say that the core customer is absolutely back shopping,” Neiman Marcus Chief Executive Officer Karen Katz said on a conference call Dec. 8. Still, consumer “spending is not back up to the levels of pre- recession and we don’t have any expectations that it will get back to that level.”
The Michigan survey showed that buying plans for household durable goods rose to the highest level since January 2008. The proportion of Americans saying they were hearing of job gains rose to the highest level since 1983.
November Unemployment
The figure is at odds with Labor Department data last week that showed November unemployment rose to 9.8 percent, the highest since April and close to a 26-year high. The economy generated 39,000 jobs after 172,000 a month earlier.
The Commerce Department’s trade report showed imports stagnated in October as U.S. demand for crude oil fell. The overall trade gap, which narrowed 13 percent, was projected to be little changed at $43.8 billion, according to the median forecast of economists surveyed. Estimates ranged from deficits of $39.5 billion to $46.6 billion.
“Trade is definitely going to provide a decent pop to growth in the fourth quarter,” Sweet said.
Exports, benefitting from a cheaper dollar, increased 3.2 percent to $158.7 billion, boosted by sales of foods, automobiles, engines and industrial supplies like fuel oil and natural gas.
U.S. Dollar
Since reaching a one-year high on June 7, the dollar has fallen 6.6 percent against a trade-weighted basket of currencies. The drop makes American goods cheaper to buyers abroad and will keep spurring manufacturing, which expanded for a 16th consecutive month in November.
The weaker dollar and increased demand from emerging markets have led to higher commodities costs, helping explain why U.S. import prices rose in November by the most in a year. The Labor Department said today that prices paid for imported merchandise increased 1.3 percent.
Separate figures from the Treasury Department showed the U.S. government posted a wider budget deficit in November as spending swelled compared with the same time last year when a shift in the timing of payments for programs like Medicare and Social Security damped outlays. The November shortfall was $150.4 billion, more than $120.3 billion in the same month in 2009.
–Bloomberg