U.S. Economy: Consumer Confidence Rises to 3-Yr High (Update2)
*Consumer confidence at a 3-year high despite record oil prices, incredible rises in tuition fees, and healthcare costs soaring... rather interesting I must say...
U.S. Economy: Consumer Confidence Rises to 3-Yr High
June 28 (Bloomberg) -- U.S. consumer confidence rose in June to the highest level in three years as an improving labor market and rising incomes outweighed higher energy prices, a private survey showed.
The Conference Board's index of sentiment increased to 105.8 during the month, higher than forecast, from 103.1 in May. Americans were more satisfied with their current financial situations than at any time since the September 2001 terrorist attacks, the New York-based research group said today.
``These numbers are consistent with solid growth in consumer spending,'' said James O'Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. O'Sullivan predicted a reading of 106. ``The ups and downs in oil prices haven't really affected consumer spending all that much.''
The percentage of consumers expecting their incomes to rise was the highest this year even as gasoline prices neared a record. The increase suggests spending will hold up and that the economy isn't in danger of stalling, a reason Federal Reserve policy makers later this week will raise their target interest rate a ninth straight time, economists forecast.
``Another strong month of consumer spending data would suggest that things aren't likely to change much for the Fed,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Connecticut.
The Conference Board's index was expected to rise to 104 from the 102.2 previously reported for May, according to the median forecast in a Bloomberg News survey. The 61 forecasts in a Bloomberg News survey ranged from 100 to 112. The reading was the highest since June 2002.
Bush's Economy
The Standard & Poor's 500 Index rose 10 points, or 0.9 percent, at 3:01 p.m. in New York. The yield on the benchmark 10- year Treasury note rose 6 basis points to 3.96 percent in New York, according to bond broker Cantor Fitzgerald LP. A basis point is 0.01 percentage point.
The research group questions 5,000 households on general economic conditions, their employment prospects and spending plans. While consumers are more confident, they're not satisfied with President George W. Bush's policies for the economy.
A CNN/USA Today/Gallup poll released Monday showed that 41 percent of those surveyed approve of Bush's handling of the economy, compared with 55 percent who disapprove. Overall, 53 percent of those questioned disapprove of how Bush is handling his job. The nationwide telephone survey of 1,009 adults was conducted June 24 through June 26. It has a margin of error of plus or minus 3 percent.
Present Situation
The present situations index increased to 120.7, the highest since September 2001, from 117.8. The expectations index rose to 95.8 from 93.4.
``The consumer is more savvy than the headlines'' about higher energy prices, said Ken Goldstein, an economist at the Conference Board, in an interview. ``You're going to be pleasantly surprised at the level of consumer spending.''
The share of consumers who expected their incomes to increase in the next six months increased to 19.4 percent, the highest this year, from 17.8 percent in May. The proportion who expected more jobs to become available in coming months held at 15.2 percent, the highest since January.
The proportion of consumers who currently saw jobs as plentiful slipped to 22.6 percent from 22.9 percent in May. The share of consumers who said jobs were hard to get fell to 22.6 percent from 24.1 percent.
Jobs and Income
May's unemployment rate fell to 5.1 percent, the lowest since September 2001, a report from the Labor Department showed earlier this month.
Incomes were up 7 percent last month from April 2004, paced by a 7.6 percent gain in wages and salaries, the latest Commerce Department data show.
The share expecting to buy a home in the next six months dipped to 3.4 percent from 3.5 percent, today's report showed. The share expecting to buy a car fell to 6.5 percent from 7.8 percent. The share planning an appliance purchase fell to 32.4 percent from 33.1 percent.
The University of Michigan said June 17 that its index of consumer sentiment rose for the first time this year in early June as the job market improved.
Fed policy makers on June 30 are forecast to raise their target rate for overnight bank lending by a quarter percentage point to 3.25 percent. While central bankers acknowledged in their May 3 statement that higher energy prices restrained spending, they said the job market continued to improve and inflation pressures had picked up.
`Very Strong'
Richard Davidson, chief executive officer at Union Pacific Corp., the largest U.S. railroad, said in an interview that ``we have seen a very nice pricing environment. Our yields have been increasing nicely, through the first two quarters. We don't see any reason for that to change, at least in the near term.''
Excluding automakers and other manufacturers, the economy ``looks very strong,'' said Davidson. ``We are seeing demand in many areas. The import business coming in off the West Coast is extremely strong. Across the board, we're seeing good demand.''
Consumer spending, which accounts for about 70 percent of the economy, will probably rise at a 3.2 percent annual pace this quarter after increasing 3.6 percent in the first three months of the year, according to the latest Bloomberg News monthly survey of economists. Spending growth average 3.4 percent at an annual rate in the last two decades.
Wal-Mart Stores Inc., the world's largest retailer, said June sales at its U.S. stores open at least a year are rising within its forecast range. Target Corp. of Minneapolis, the second-largest U.S. discount retailer, said sales for the month will be ``somewhat above'' its prior forecast of 4 percent to 6 percent growth.
Energy Costs
Record housing prices may be helping buoy confidence among homeowners, said Wesley Beal, chief U.S. economist at IDEAglobal.com in New York.
Still, a jump in oil prices in recent weeks may push up gasoline prices that already are well above last year's average of $1.89 a gallon.
The average retail price of a gallon of gasoline was $2.20 in both June and May after $2.28 in April, when fuel reached a record, according to Energy Department data.
Crude oil for August delivery rose to a closing record of $60.45 a barrel yesterday on the New York Mercantile Exchange. Oil has risen by about two-thirds in the past year.
Ford Motor Co. last week cut its 2005 earnings forecast for the second time this year and Moody's Investors Service said it may lower the company's credit rating to junk status, in part because demand for Ford's biggest and most-profitable vehicles is waning as the price of gasoline rises.
To contact the reporter on this story:
Joe Richter in Washington Jrichter1@bloomberg.net.
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