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Confidence Improves as U.S. Consumers’ Views on Economy Mend

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.

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