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Consumer confidence hits nearly five-year high

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Updated: December 29, 2012 6:17AM

Consumer confidence shot up to the highest level in nearly five years this month, helped by an improving job market, and the brighter sentiment could rev up the economy going forward, if legislators in Washington don’t blow it by going over the fiscal cliff, economists warned Tuesday.

The Conference Board said its Consumer Confidence Index rose to 73.7, the highest level since a 76.4 reading in February 2008 and up from 73.1 in October.

The Conference Board report is based on a survey of roughly 2,500 households.

“Over the past few months consumers have grown increasingly more upbeat about the current and expected state of the job market, and this turnaround in sentiment is helping to boost confidence,” Lynn Franco, director of Economic Indicators at the Conference Board, said in a statement.

An improving housing market, more robust job creation in recent months combined with declines in the unemployment rate have improved the mindset of American households, Chicago-based Northern Trust Chief Economist Carl Tannenbaum said.

Since July, the U.S. economy has created an average of 173,000 jobs a month, up from 67,000 a month, the October employment situation report showed. The jobless rate stood at 7.9 percent nationally in October, down from 8.9 percent a year earlier.

Meanwhile, median home prices nationally rose 11.1 percent in October from a year earlier, the National Association of Realtors said earlier this month. And the Standard & Poor’s/Case-Shiller home price index report released Tuesday showed year-over-year price gains in 18 of 20 metropolitan areas across the country in September.

Improving home prices “are not only a good psychological sign, but also tend to improve peoples’ sense of wealth,” Tannenbaum said.

“I’m delighted that the psychology in our economy is getting better because it’s terribly important. If people are optimistic, that optimism can become self-fulfilling as they express that optimism through their investments and spending decisions.”

But he noted consumer confidence improvements were seen in 2011, but came to a “crash through the summer months as (Congressional) budget negotiations failed. If we get a favorable resolution to the fiscal cliff, I would expect consumer confidence to continue to rise,” Tannenbaum said. “But if (Congress and the Obama administration) fail in those negotiations, I am afraid that the national mood is very vulnerable.”

The Obama administration and Congress have been working to avoid the fiscal cliff, which refers to the simultaneous end of Bush-era tax cuts and automatic spending cuts set to go into effect the first of next year.

The Conference Board survey showed the percent of households claiming jobs are plentiful increased to 11.2 percent from 10.4 percent in October, and those who said they anticipate more jobs in the months ahead edged up to 20.3 percent from 19.7 percent.

Those who said they expect business conditions to improve over the next six months edged up to 22.2 percent from 21.25 percent, while those expecting business conditions to worsen slid to 14.3 percent from 15 percent.

Adding more reason for optimism going forward was a report Tuesday from the Commerce Department that showed orders for core capital goods, considered a proxy for business investment, rose 1.7 percent in October, the best showing since a 2.3 percent rise in May.

Total orders for durable goods were unchanged in October at $216.9 billion following a 9.2 percent jump in September that had been driven by a surge in demand for commercial aircraft. In October, demand for machinery, primary metals and communications equipment increased, a hopeful sign for future economic growth.

Contributing: AP

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