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Consumers’ outlook on economy improves to a 5-month high

Americans in January became the least pessimistic about the economic outlook in five months amid signs the expansion was gaining momentum heading in 2014.

The gap between positive and negative expectations for the economy shrank to minus 5 this month, its best reading since August, from minus 11 in December, according to data from the Bloomberg Consumer Comfort Index released Thursday. A decline in the weekly measure to a one-month low of minus 31 for the period ended Jan. 12 underscores the uneven improvement in sentiment.

Higher home values and stock prices are driving gains in household wealth at the same time Washington makes progress on overcoming fiscal-policy hurdles that have held back growth. More hiring would help lift Americans’ spirits and underpin the consumer purchases that make up about 70 percent of the economy.

“Households are confident that the increase in overall economic activity is sustainable and expect gains in 2014,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “The improvement in the labor sector, rising equity markets and a noticeable increase in total private credit creation at the end of 2013 has resulted in a more confident consumer.”

The monthly expectations survey showed 28 percent of respondents said the economy was getting better, up from 26 percent a month earlier. The share of those who said it’s getting worse declined to 33 percent from 37 percent. Thirty-nine percent said it was staying the same, compared with 36 percent last month.

Budget negotiations

The monthly gauge has improved each month after reaching an almost two-year low of minus 31 in October, when lawmakers’ failure to agree on a budget resulted in a 16-day partial shutdown of the federal government.

The Senate agreed Wednesday to a three-day stopgap spending bill while working on the details of a bipartisan compromise to fund the government through Sept. 30.

Other reports showed fewer Americans filed for unemployment insurance last week, while inflation moved closer to the Federal Reserve’s goal. Claims for jobless benefits dropped by 2,000 to 326,000. The consumer price index increased 0.3 percent in December, the most since June, after no change a month earlier, according to the Labor Department.

Stocks fell, after the Standard & Poor’s 500 Index closed at a record, as investors scrutinized earnings at companies from Goldman Sachs Group Inc. to Citigroup Inc. The S&P 500 dropped 0.2 percent to 1,844.22 at 9:35 a.m. in New York.

The weekly Bloomberg comfort index declined from minus 28.4 the prior week, reaching the lowest level since the period ended Dec. 1.

Components decline

All three components of the weekly comfort index -- views of the economy, finances and whether it’s a good time to shop -- declined.

The gauge assessing Americans’ views on the current state of the economy dropped to minus 60.1 from a three-month high of minus 55.9 the prior week.

The measure of consumers’ views on their personal finances fell to 2, its lowest reading since November, from 2.6. The buying-climate index decreased to minus 34.9 from minus 32.

The improvement in the monthly expectations gauge may in part reflect higher home values. The S&P/Case-Shiller index of property prices in 20 U.S. cities climbed 13.6 percent in October from a year earlier, the biggest 12-month gain since February 2006, according to a Dec. 31 report from the group.

Retail sales rose in December, capping what may have been the strongest quarter for consumer spending in three years, even as frigid temperatures kept some Americans from brick-and-mortar stores.

Purchases increased 0.2 percent after a 0.4 percent advance in November, Commerce Department figures showed earlier this week. Excluding a drop in auto demand that vehicle makers also partly attributed to the bad weather, sales jumped by the most in almost a year. Last month was the coldest December since 2009 and snowfall was 21 percent above normal, according to weather- data provider Planalytics Inc.

Economists are also seeing brighter prospects ahead, raising projections this month for 2014 growth and consumer spending. The world’s largest economy will expand 2.8 percent this year, according to the median estimate of economists in a Bloomberg survey conducted Jan. 10-15. That compares with a 2.6 percent forecast in a December poll. Consumer spending growth will average 2.6 percent in 2014, up from the 2.4 percent forecast in last month’s survey.

“As we start the new year, I’m excited about the opportunities ahead for our country,” John Stumf, chief executive officer at Wells Fargo & Co., said on a Jan. 14 earnings call. “The unemployment rate has declined, GDP growth accelerated, and consumer confidence is near a five-year high.”

Federal Reserve

Fed policy makers, meeting Jan. 28-29, will consider labor market gains as they debate further reductions in monthly asset purchases meant to stimulate the expansion.

Payrolls rose by 74,000 workers, the smallest gain in almost three years, figures from the Labor Department showed last week. The advance followed a 241,000 jump in November. The unemployment rate declined to 6.7 percent, the lowest since October 2008, as more people left the labor force.

The Bloomberg Consumer Comfort Index, compiled by Langer Research Associates in New York, conducts telephone surveys with a random sample of 1,000 consumers ages 18 and older. Each week, 250 respondents are asked for their views on the U.S. economy, personal finances and buying climate. The margin of error for the headline figure is 3 percentage points.

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.

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