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Consumer Sentiment in U.S. Increases More Than Forecast

Nov. 9 (Bloomberg) -- Confidence among U.S. consumers rose more than forecast in November, reaching a five-year high as the labor market showed signs of improvement.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index climbed to 84.9, the fourth straight increase and the highest since July 2007, from 82.6 in October. Economists projected a preliminary reading of 82.9 for November, according to the median estimate of 71 economists surveyed by Bloomberg.

Employment gains are combining with cheaper gasoline and rising home values to brighten Americans’ moods and the prospects for spending, which accounts for about 70 percent of the U.S. economy. At the same time, the approaching so-called fiscal cliff of tax increases and government cutbacks serves as a reminder to households that the expansion faces hurdles.

“The job market is a bit better, there’s fewer overall layoffs, then your house price goes up, so your confidence is going to go up,” said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities in New York, who projected the sentiment gauge would rise to 85. “This is a slow uneven economy that continues to mend.”

Stocks climbed as the data overshadowed concern about the fiscal cliff. The Standard & Poor’s 500 Index rose 0.5 percent to 1,384.87 at 11:03 a.m. in New York.

Estimates for the confidence measure ranged from 74.7 to 86, according to the Bloomberg survey. The index averaged 64.2 during the last recession and 89 in the five years leading up to the 18-month economic slump that began in December 2007.

Consumer Expectations

The Michigan index of consumer expectations six months from now, which more closely projects the direction of consumer spending, increased to 80.8, the best reading since July 2007, from 79 in October. The gauge of current conditions rose to 91.3, the highest since January 2008, from 88.1 the prior month.

By comparison, the Bloomberg Consumer Comfort Index climbed last week as Americans’ ratings of the economy reached the highest level in more than four years.

The gauge rose to minus 34.4 in the period ended Nov. 4, the best reading since April, from minus 34.7 the previous week, the report showed yesterday. Twenty percent of those surveyed had a positive view of the world’s largest economy, the most since March 2008.

Shopping Malls

“As we look toward the fast approaching holiday season, we are encouraged by the recent strong gains in consumer confidence as lower gas prices, a recovering housing market and improved job reports resonate with the shopper,” Stephen Lebovitz, chief executive officer of Chattanooga, Tennessee-based shopping mall owner CBL & Associates Properties Inc., said on a Nov. 7 earnings teleconference.

“While some are pleased with the outcome of the election and others are disappointed, we are confident that the economy is headed in the right direction and that our malls will benefit going forward,” he said.

Progress in the labor market and cheaper gasoline prices may be helping to shore up consumer sentiment. Employers added 171,000 workers in October, more than forecast, the Labor Department said on Nov. 2.

The average nationwide price for regular gasoline dropped to $3.46 a gallon yesterday, the cheapest since the middle of July, according to AAA, the largest U.S. motoring organization.

Household Spending

The gains in confidence have coincided with a pickup in household spending. Purchases rose 0.8 percent in September, the biggest gain in seven months, after advancing 0.5 percent in August, the Commerce Department said on Oct. 29. Retail sales in September and August had the best back-to-back showing since late 2010.

At the same time, income has been slow to pick up. Average hourly earnings climbed 1.6 percent in October from the same time last year, the smallest gain since comparable year-over- year records began in 2007, the Labor Department said on Nov. 2. Earnings for production workers rose 1.1 percent in the 12 months to October, the weakest since records began in 1965.

Disposable income, or the money left over after taxes, was little changed in September after falling 0.3 percent after adjusting for inflation, the Commerce Department said on Oct. 29. The savings rate dropped to 3.3 percent, the lowest since November, from 3.7 percent.

Today’s report showed consumers expect limited inflation. They projected prices will rise 3 percent over the next 12 months, compared with 3.1 percent in the prior survey. Over the next five years, Americans expected 2.8 percent rate of inflation, compared with 2.7 percent in the previous report.

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