December 29, 2004 in Business

Consumer confidence jumps

Seth Sutel Associated Press
 

NEW YORK – Improving labor market conditions and cheaper energy prices led to a sharp increase in a widely watched indicator of consumer confidence in the economy in December, a good sign for growth heading into the new year.

The Conference Board, a New York-based business research group, reported Tuesday that its index of consumer confidence leapt by nearly 10 points to 102.3 in December from 92.6 in November, following four months of declines. It was the highest level for the indicator since July and well above the 94 that investors had been expecting.

The report helped push stocks higher on Wall Street. The price of the benchmark 10-year Treasury note, which tends to fall on news of a strengthening economy, dipped 1/8 point to yield 4.31 percent.

The surge in the consumer confidence index suggested that Americans were feeling more optimistic about their economic prospects. Economists pointed to an improving labor market and cheaper energy prices as main factors for the bounce.

Anthony Chan, senior economist with J.P. Morgan Fleming Asset Management in Columbus, Ohio, said he was “very impressed” with the results of the report, which he said suggested that “labor markets are improving nicely, and may actually be a lot healthier than the current perception.”

Indicators of consumer confidence are widely watched by economists since spending by individuals makes up about two-thirds of all economic activity in the United States.

Economists have generally been disappointed in the sluggish job growth in the economy in recent months, which has lagged behind other indicators of strength in the economy such as industrial activity. Earlier this month the government reported that only 112,000 jobs were created in November, the lowest amount since July and just half of what economists had forecast.

Despite the poor showing of job growth, the unemployment rate edged down 0.1 percentage point to 5.4 percent in November. That rate is based on a separate survey of households.

Economists are hoping for a slightly better showing of 175,000 jobs being created in December, but even that level would hardly be a sign of a booming economy. The economy must create about 150,000 new jobs each month just to keep up with population growth.

While the jump in the consumer confidence index was large, Richard Berner, chief economist with Morgan Stanley, cautioned against reading too much into the rebound in the indicator, which is often volatile.

The survey found that consumers’ outlook for the next six months was more upbeat than the month before. The number of respondents saying they expected business conditions to improve rose to 22.0 percent from 20.3 percent, while those saying they expected conditions to worsen fell to 7.7 percent from 11.4 percent.

Those saying they believed business conditions were good rose to 24.4 percent from 23.2 percent, while those saying they were bad fell to 17.8 percent from 20.2 percent.

The survey’s reading of the labor market also improved in December. The percentage of respondents saying jobs are plentiful rose to 19.4 percent from 17.1 percent, while those saying jobs were hard to get fell to 26.4 percent from 28.0 percent.

The outlook for jobs also improved. Those saying they expected fewer jobs to become available in the coming months declined to 15.5 percent from 19.3 percent. However, those saying they expected more jobs to become available slipped to 16.2 percent from 17.6 percent.

© Copyright 2004 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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