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Consumer Comfort in U.S. Holds Near Highest Level Since April

Dec. 6 (Bloomberg) -- Consumer confidence held last week near a seven-month high as the holiday-shopping season put more Americans in the mood to spend.

The Bloomberg Consumer Comfort Index eased to minus 33.8 in the period ended Dec. 2 from minus 33 the prior week. The reading, within the margin of error of 3 percentage points, was the 11th straight above minus 40, the level associated with recessions and their aftermath.

Seasonal discounting, expanded store hours and deals on the Internet may have helped drive the Bloomberg buying-climate gauge to the highest level in more than five years. At the same time, there’s a risk households will cut back on spending, which accounts for about 70 percent of the economy, should lawmakers fail to make progress in preventing automatic tax increases and budget cuts that take effect in 2013.

“The overall improvement in the buying index bodes well for the initial portion of the traditional holiday shopping season,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The risk is when wage earners are informed by employers that their after-tax income may decline due to scheduled changes in U.S. federal tax policy next year, which indicates the consumer may pull back ahead of the critical final week before Christmas.”

Labor Department figures today showed fewer Americans filed applications for unemployment benefits last week as disruptions caused by superstorm Sandy waned. Jobless claims decreased by 25,000 to 370,000 in the week ended Dec. 1.

Stocks fell as European Central Bank President Mario Draghi said weak activity in Europe will probably continue. The Standard & Poor’s 500 Index declined 0.1 percent to 1,408.26 at 9:35 a.m. in New York.

Buying Climate

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. Nonetheless, the share of consumers giving the economy the worst rating of “poor,” fell to 34 percent, the fewest in almost five years.

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.

Consumer Confidence

Further advances in confidence may bolster spending. 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 percent during the holiday weekend.

“Consumer confidence is soldiering on despite fiscal cliff uncertainties,” 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 for an improvement in sentiment. 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.

The economy is also still adding jobs. Employers boosted payrolls by 171,000 jobs in October, exceeding the 157,000 average this year, according to data from the Labor Department. November data are scheduled for release tomorrow.

Fiscal Cliff

At the same time, Americans are bracing for the possibility of higher taxes and government budget cuts as lawmakers try to find a solution before the end of the year.

“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 as we saw last year during the debt ceiling debate.”

Today’s report is in line with other sentiment measures. The Conference Board’s confidence index increased to 73.7 in November, a four-year high, from 73.1 the prior month.

The Bloomberg Consumer Comfort Index, compiled by Langer Research Associates in New York, conducts telephone surveys with a random sample of 1,000 consumers 18 and older. Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate; the percentage of negative responses is subtracted from the share of positive views and divided by three. The most recent reading is based on the average of responses over the previous four weeks.

The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative. The margin of error for the headline reading is 3 percentage points.

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