Consumer comfort reaches five-year high

Consumer sentiment climbed last week to its highest level in more than five years as Americans felt the most upbeat about spending since before the recession began.

The Bloomberg Consumer Comfort Index improved to minus 28.9 in the week ended April 28, its highest since January 2008, from minus 29.9 the week earlier. The buying-climate gauge rose to minus 32.5, the best reading since November 2007, a month before the worst economic slump since the Great Depression began.

The gain in sentiment is being driven by high-income earners as rising home and stocks values bolster balance sheets, which may help underpin consumer spending. While easing fuel costs may help those at the other end of the pay scale, the higher payroll tax that took effect in January may be starting to hurt those households.

“We had a nice big bounce at the upper end, that’s an indication that they’re feeling a lot more confident due to the rise in equity prices,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “ That is one of the ongoing stories at this point in the U.S. expansion.”

The number of Americans filing claims for jobless benefits fell by 18,000 to 324,000 in the week ended April 27, the fewest since January 2008, Labor Department figures showed in Washington. Economists forecast 345,000 claims, according to the median estimate in a Bloomberg survey. A Labor Department official said there was nothing unusual in the data.

Stocks rose as the European Central Bank cut its key interest rate and U.S. jobless claims unexpectedly declined. The Standard & Poor’s 500 Index advanced 0.4 percent to 1,589.16 at 9:40 a.m. in New York.

Buying Climate

Of the three components of the comfort index, views on whether this is a good time to buy sustained the biggest gain, climbing from minus 34.8, the survey found.

The comfort survey’s measure assessing Americans’ views on the current state of the economy climbed to minus 57.2 from minus 58.3 in the prior week.

The index measuring consumers’ views on their personal finances was little changed at 3, the third consecutive positive reading.

The S&P 500 Index closed at a record 1,597.57 April 30, and the S&P/Case-Shiller index of property values in 20 cities rose 9.3 percent in February from the same month in 2012, the biggest year-to-year advance since May 2006, the group reported this week.

High income earners were among those feeling better as a result. Comfort among those earning $100,000 or more annually gained 8 points to 19.7, its best level since 2010, and second- best since November 2007.

Upper Earners

Confidence for all those earning more than $50,000 was positive for the first time since November 2007, with their gauge rising to 0.4.

Other groups making headway include homeowners, whose confidence last week was is at its best level since January 2008, climbing to minus 21.5, up 10.8 points from its low this year, today’s report showed.

Women, high school graduates, and married Americans were also among the groups achieving their highest levels of confidence in five years.

Consumer purchases advanced 0.2 percent in March, more than projected as outlays for utilities and other services surged, Commerce Department figures showed this week.

Auto Sales

The auto market, which has been leading the gains spending, shows signs of leveling off. Cars and light trucks sold at 14.9 million annual rate in April, the lowest level since October, industry data showed yesterday. Purchases averaged a 15.3 million annualized rate in the first quarter, the most since the same period in 2008, according to data from Ward’s Automotive Group.

General Motors Co. has benefitted from improved confidence as their sales climbed in April.

“Just as you can correlate stronger pickup sales to the housing recovery, crossover sales closely track confidence at the family level,” Kurt McNeil, vice president for U.S. sales and service, said in a May 1 conference call. The company reported a 14 percent increase in crossover sales, plus a 17 percent increase in pickup, van and sport-utility vehicle purchases and a 6 percent gain in cars from the same month last year, based on a company press release.

Still, continued high unemployment and fiscal policy changes may restrain undermine confidence and consumers’ ability to spend.

Unemployment Forecast

April employment data are due from the Labor Department tomorrow, and unemployment is projected to hold at 7.6 percent, based on the median estimate in Bloomberg Survey.

Meanwhile, the world’s largest economy shows signs of slowing as cuts to planned federal spending that took effect in March are divvied out. In addition, a higher payroll tax that took effect in January could have a lagged effect on spending. The tax reverted to its 2010 rate of 6.2 percent after holding at 4.2 percent for two years, costing households that earn $50,000 a year about $80 per month.

The Bloomberg Consumer Comfort Index, compiled by Langer Research Associates in New York, conducts telephone surveys with a random sample of 1,000 consumers ages 18 and older. Each week, 250 respondents are asked for their views on the U.S. economy, personal finances and buying climate. The percentage of negative responses is subtracted from the share of positive views and divided by three. The most recent reading is based on the average of responses over the previous four weeks.

The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative.