Americans in mood to spend at start of holiday

Consumer confidence held close to a seven-month high last week as the holiday-shopping season put more Americans in the mood to spend, and claims for unemployment benefits declined.

The Bloomberg Consumer Comfort Index eased to minus 33.8 in the period ended Dec. 2 from minus 33. The reading, within the margin of error of 3 percentage points, was the 11th straight above minus 40, a point associated with recessions and their aftermath. Jobless claims decreased by 25,000 to 370,000 in the week ended Dec. 1, the Labor Department said.

Holiday shoppers are taking advantage of discounting, expanded store hours and Internet deals, explaining why a gauge of the buying climate climbed to a five-year high. While confidence is getting a lift from cheaper gasoline and an improving job market, failure by lawmakers to prevent automatic tax increases threatens to throttle the household spending that accounts for 70% of the economy.

“I don’t expect that consumers will hold back during the holidays,” said Dean Maki, chief U.S. economist at Barclays Plc in New York. “I think the bigger risk is that as we move into the first quarter, if there’s not a resolution on the fiscal cliff,” Americans would cut back as their after-tax incomes decline, he said.

The drop in claims was the third straight. The mid-Atlantic region, which employs about 14% of U.S. workers, is recovering after Sandy. Apart from the storm-related damage – which may also be reflected in the November payrolls report tomorrow – employers will probably curb hiring until the risks from the global slowdown and looming fiscal tightening dissipate.

HOUSEHOLD WORTH
A recovery in third-quarter household worth, boosted by higher stock values and home prices, may also make Americans more inclined to spend. Net worth for households and non-profit groups increased by $1.72 trillion from July through September, or 2.7% from the previous three months, to $64.8 trillion, the Federal Reserve said today (Dec. 6) from Washington in its flow of funds report.

The Bloomberg comfort index’s buying climate gauge improved to minus 33.4, the strongest since November 2007, from minus 35.4 the previous week. The personal finances index dropped to minus 6.6 from minus 4.4 the prior week.

The barometer measuring Americans’ views on the state of the economy fell to minus 61.5 from minus 59.2 the prior period. Even so, the share of consumers giving the economy the worst rating of “poor,” fell to 34%, the fewest in almost five years.
“Overall, consumer confidence is up but it remains fragile,” David Dillon, chairman and chief executive officer of Kroger Co., the Cincinnati-based grocery chain, said on a Nov. 29 earnings call. “Uncertainty around issues like the fiscal cliff can have a short-term impact on consumer sentiment.”

The comfort index last week was 16.5 points better than it was during this period last year. The gauge in 2012 has averaged minus 38.6 and is on track for its best annual showing in five years.

Further advances in confidence may bolster purchases. During the four-day Thanksgiving weekend, spending in stores and online rose 13 percent to $59.1 billion, according to the National Retail Federation. Last year, sales climbed 16% during the holiday weekend.

Online holiday sales climbed 14% from Nov. 1 through Dec. 2 from the same period last year, according to comScore. The gain was propelled by Cyber Monday, which was the biggest online shopping day on record.

“Consumer confidence is soldiering on,” said Gary Langer, president of Langer Research Associates in New York, which compiles the index for Bloomberg. Stagnant income advances and weak production are headwinds, while “other indicators — joblessness, the housing market and GDP among them — have improved along with consumer sentiment.”

A recovery in residential real estate is one reason consumers are more bullish. The S&P/Case-Shiller index of home prices in 20 cities showed property values rose in the year ended in September by the most since July 2010, according to a Nov. 27 report. Sales of previously owned properties rose in October, according to the National Association of Realtors.