WASHINGTON – Confidence among U.S. consumers rose in February to a three-year high, exceeding forecasts, as more Americans predicted the economy and their incomes will grow.
The Conference Board’s sentiment index increased to 70.4, the highest level since February 2008, from 64.8 the prior month, according to figures on Tuesday from the New York-based private research group. Another report showed home values dropped by the most in a year.
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Gains in stocks, less unemployment and a cut in payroll taxes that is boosting paychecks may help Americans weather the highest gasoline prices in more than two years. At the same time, a housing market that shows little sign of stabilizing as foreclosures mount remains a hurdle.
“People are just feeling better because there are more jobs out there,” said Ellen Zentner, a senior macroeconomist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “It’s unfortunate that we don’t have the housing market helping us in this recovery.”
Economists projected the gauge, which has averaged 94.5 since its inception in 1967, would be little changed at 65.5, according to the median of 67 forecasts in a Bloomberg News survey. The Conference Board revised the January reading from a previous estimate of 65.6.
The increase in the Conference Board’s measure is in contrast with the Bloomberg Consumer Comfort Index, formerly the ABC News U.S. Weekly Consumer Comfort Index, which held near a two-month low in the week ended Feb. 13. Twenty-nine percent of those in the latter survey also said the economy will worsen, the most since November and up from 23 percent in early January.
Gasoline’s Influence
The comfort measure may more often mirror changes in gasoline prices, whereas changes in the labor market may have more influence on the Conference Board’s confidence index.
Gasoline prices and the comfort index have moved in the same direction 98 percent of the time since 2004, according to calculations by Joseph Brusuelas, a senior economist at Bloomberg LP in New York.
The average price of a gallon of gasoline at the pump was $3.17 on Feb. 20 and 21, the highest level since October 2008, as mounting tension in the Middle East and North Africa drove up the cost of crude oil.
Stocks dropped on concern over rising unrest. The Standard & Poor’s 500 Index fell 1.2 percent to 1,326.68 at 11:45 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 3.49 percent from 3.59 percent late yesterday.
Home Prices
The S&P/Case-Shiller index of home values in 20 cities fell 2.4 percent in the 12 months to December, the biggest year-over-year decrease since December 2009, the group said in New York.
A projected increase in foreclosures as banks resume seizures may depress home values further, prompting would-be buyers to hold off on purchases. Unemployment and declines in housing are among reasons the Federal Reserve has signaled it will proceed with its unconventional monetary stimulus.
“Home prices are still declining amid excess supply,” said Michelle Meyer, a senior economist at Bank of America Merrill Lynch Global Research in New York. “Although transactions have started to pick up, buyers are looking for very low prices. There is a backlog of distressed properties and it will flow into the market this year. We expect to see a gradual drop in prices.”
Housing Slump
Nationally, prices decreased 4.1 percent in the fourth quarter from the same time in 2009 and were down 3.9 percent from the previous three months, the biggest quarter-to-quarter drop in almost two years. At 130.38, the index was just shy of the recession low of 129.2 reached in the first quarter of 2009.
“My intuition rates the probability of another 15, 20, even 25 percent real home price decline as substantial,” Robert Shiller, co-founder of the index and an economics professor at Yale University, said on a conference call with reporters. “That’s not a forecast but it’s a substantial risk.”
The confidence report showed the share of Americans who said they expect their incomes to increase in the next six months rose to 17.3 in February, the most since February 2008. The percentage of those believing the economy will improve climbed to the highest level since September 2008.
Americans stepped up their purchases in the final three months of 2010. Consumer spending grew at a 4.4 percent annual pace, the fastest since the last quarter of 2004, according to a Jan. 28 Commerce Department report.
Hiring Plan
Home Depot Inc., the world’s largest home-improvement retailer, this month said it is hiring more than 60,000 temporary workers in the U.S., as well as adding permanent employees for the second year in a row.
The Atlanta-based company is boosting staff as it prepares for the biggest selling season of the year, March through mid- June, Craig Menear, executive vice president of merchandising, said in a telephone interview Feb. 14.
President Barack Obama on Dec. 17 signed into law an $858 billion bill that extended for two years tax cuts for all income levels. The measure also expanded jobless insurance benefits to the long-term unemployed for 13 months and reduced payroll taxes for workers by two percentage points this year.
