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By Michelle Jamrisko – May 23

Consumer sentiment advanced last week, an indication that gains in housing and stock markets are bolstering Americans’ outlooks on the economy.

The weekly Bloomberg Consumer Comfort Index (COMFCOMF) increased to minus 29.4 for the period ended May 19 from minus 30.2 the prior week. A measure of personal finances was positive for a sixth consecutive week, the longest stretch in more than five years.

Higher stock prices and property values are helping consumers repair finances, which may underpin spending, the biggest part of the economy. Many Federal Reserve policy makers have said more labor-market progress is needed to ensure the expansion is sustained, which means low interest rates will probably continue to prop up households’ assets.

“Price appreciation in domestic equity markets and housing has likely bolstered confidence of Americans in the sustainability of the current expansion,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The late arrival of the recovery in housing should serve to elongate that expansion.”

The comfort gauge has been hovering close to a five-year high of minus 28.9 reached at the end of April. It foreshadowed a similar gain in the Thomson Reuters/University of Michigan index of consumer sentiment, which reached an almost six-year high this month.

Fewer Americans than projected filed applications for unemployment benefits last week, a sign that the job market is sustaining recent gains, another report today showed.

Fewer Claims

Jobless claims decreased by 23,000 to 340,000 in the week ended May 18, according to figures from the Labor Department. The median forecast of 50 economists surveyed by Bloomberg called for a drop to 345,000.

Stocks dropped as data showed Chinese manufacturing unexpectedly shrank and equity markets from Europe to Japan tumbled. The Standard & Poor’s 500 Index fell 1.1 percent to 1,637.48 at 9:40 a.m. in New York.

Two of the three components of the comfort index climbed last week.

The index of Americans’ views of the national economy improved to minus 55, its strongest in a month and second-highest since January 2008, from minus 57.9 in the prior week. A gauge of buying conditions was little changed at minus 34.4 from minus 34.6.

While down on the week, to 1.3 from 1.8, the gauge of personal finances was positive for a sixth consecutive period, its strongest run since March-April 2008.

Upper Income

Those earning from $75,000 to $100,000 a year are particularly optimistic, with that income group turning positive for the first time since November 2007. Confidence for households with incomes of $100,000 or more a year has been positive in 28 of the past 29 weeks.

Homeowners registered their strongest reading since January 2008, reflecting healing in residential real estate.

Sales of previously owned U.S. homes climbed in April to the highest level in more than three years, the National Association of Realtors reported yesterday in Washington. Purchases of existing houses increased 0.6 percent to an annual rate of 4.97 million, the most since November 2009.

Residential real-estate prices rose in February by the most since May 2006, with the S&P/Case-Shiller index of house values in 20 cities up 9.3 percent from a year ago.

“The housing market continues to show convincing signs of life,” Robert Niblock, chief executive officer of Lowe’s Cos. (LOW), the second-largest U.S. home-improvement retailer, said on an earnings call yesterday. “We do expect that the lagged effect of recent gains in housing will benefit home-improvement demand as the year progresses.”

Fed Action

Still, more improvement in the world’s largest economy will be needed to convince the Fed to slow the pace of monthly asset purchases that are meant to boost the recovery.

The unemployment rate stands at 7.5 percent almost four years into a recovery from the longest and deepest recession since the Great Depression. Payrolls in April climbed by 165,000 workers, the Labor Department said, after a gain of 138,000 jobs in March.

“A premature tightening of monetary policy could lead interest rates to rise temporarily but would also carry a substantial risk of slowing or ending the economic recovery and causing inflation to fall further,” Fed Chairman Ben S. Bernanke said yesterday in testimony to the Joint Economic Committee of Congress in Washington. Monetary policy is providing “significant benefits,” he said.

Many Fed officials said more progress on the labor market is needed before deciding to slow the pace of asset purchases, according to minutes of their last meeting.

Older Americans

Among age groups, confidence among 55- to 64-year-olds climbed last week to minus 28.8, the strongest since December 2007, from minus 35.5 in the prior period.

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.

By Susanne Walker – May 15, 2013

Treasury 10-year note yields fell the most in a month as an unexpected drop in regional manufacturing and declining producer prices eased speculation that a strengthening economy will prompt the Federal Reserve to reduce stimulus.

The benchmark yields fell from a two-month high as industrial production in April declined the most in eight months. U.S. debt rose after data showed the euro-area economy shrank more than analysts forecast and German growth cooled. U.S. 10-year notes had declined for four consecutive days on speculation stronger economic data would lead the central bank to curtail bond-buying.

“Treasuries have rallied and equities come off the highs as data reminds the market that the path to a recovery will be a choppy one,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “It brings into question the idea we would see 2 percent 10-year yields this week.”

U.S. 10-year yields fell four basis points, or 0.04 percentage point, to 1.94 percent at 10:50 a.m. New York time, according to Bloomberg Bond Trader data. The price of the 1.75 percent security due in May 2023 added 11/32, or $3.44 per $1,000 face amount, to 98 10/32. Earlier, yields climbed to 1.98 percent, the most since March 15.

Thirty-year bond yields were three basis points lower at 3.16 percent, declining from a seven-week high reached yesterday. The Standard & Poor’s 500 Index of stocks fell 0.1 percent after rallying to a record yesterday.

Market Measure

The 14-day relative strength index for the 10-year note dropped to 66 after rising yesterday to 72. A value above 70 indicates the yield may be poised to change direction. It was at 53 a week earlier.

“It’s a knee-jerk reaction to the soft print on Empire on the screen and a softer inflation profile,” said Jacob Oubina, senior economist in New York at Royal Bank of Canada’s RBC Capital Markets unit, one of 21 primary dealers that trade with the Fed.

The Fed Bank of New York’s general economic index declined to minus 1.4 in May from 3.1 in April. Readings less than zero signal contraction in New York, northern New Jersey and southern Connecticut. The median projection in a Bloomberg survey called for an increase to 4.

Output at factories, mines and utilities fell a more-than-forecast 0.5 percent after a revised 0.3 percent gain in the prior month that was weaker than previously reported, a report from the Fed showed today in Washington. The median forecast in a Bloomberg survey called for a 0.2 percent decline. Manufacturing, which makes up 75 percent of total production, decreased 0.4 percent, the third drop in the last four months.

Inflation Slows

The producer price index dropped by 0.7 percent last month, the biggest decrease since February 2010. It was forecast to drop 0.6 percent in April, according to a Bloomberg News survey before the report.

The yield gap between 10-year notes and Treasury Inflation Protected Securities, called the 10-year break-even rate, was at 2.29 percentage points, close to the 2013 low of 2.24 percentage points reached on May 9. It is down from this year’s high of 2.6 percentage points reached Feb. 4.

Central banks around the world have been buying bonds and cutting interest rates in a bid to boost growth and stave off the risk of deflation.

The Fed said after a policy meeting on May 1 it will keep buying bonds as long as the outlook for inflation doesn’t exceed 2.5 percent and as unemployment remains above 6.5 percent.

Fed Policy

The central bank is buying $85 billion of government and mortgage debt a month to support the economy by holding borrowing costs down. The Fed bought $916 million in notes maturing between August 2023 and February 2031 today. Fed policy makers meet on June 18-19.

Foreign holdings of Treasuries rose to $5.76 trillion in March, a 0.7 percent increase from the previous month, the smallest since December. Foreign investors held 50.5 percent of the $11.4 trillion in U.S. debt outstanding in March, the smallest since December.

China, the largest foreign lender to the U.S., decreased its holdings in Treasuries in March by $1.4 billion or 0.1 percent to $1.25 trillion. Japan, the second largest foreign lender to the U.S., reduced its holdings of U.S. government debt $0.5 billion to $1.105 trillion.

The Treasury is revising holdings data on a monthly basis rather than annually based on the nationality of the beneficial holder of the debt, while the initial data will still count the location of the purchase.

European Data

Gross domestic product in the 17-nation euro zone fell 0.2 percent after a 0.6 percent decline in the previous three months, the European Union’s statistics office in Luxembourg said today. The median estimates in a Bloomberg News survey was for a 0.1 percent contraction.

German GDP rose 0.1 percent in the first quarter from the last three months of 2012, when it fell a downwardly revised 0.7 percent, the Federal Statistics Office in Wiesbaden said today. Economists forecast a 0.3 percent gain.

Treasuries have dropped 1.1 percent this month as of yesterday, according to Bank of America Merrill Lynch indexes. The debt has lost 0.3 percent this year after gaining 2.2 percent in 2012.