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Consumer Sentiment in U.S. Rises to Highest Level Since July

April 11 (Bloomberg) -- Consumer confidence rose in April to the highest level since July, boosted by further improvement in the labor market that will provide some traction for the economy after a weather-related slowdown early this year.

The Thomson Reuters/University of Michigan preliminary index of sentiment climbed to 82.6 this month from a four-month low of 80 in March. The median estimate in a Bloomberg survey of economists called for the measure to increase to 81.

More favorable views of current conditions and the outlook show consumers are taking higher prices at grocery stores and gas stations in stride, indicating gains in household purchases will be sustained. More employment opportunities that spur a pickup in wages would help provide a bigger boost for the consumer spending that makes up the largest part of the economy.

“The confidence that we had going into 2014 got pushed back a couple months, but now we’re going to see it blossom in the spring,” said Jay Morelock, an economist at FTN Financial in New York, who projected a reading of 82.3. “Expectations are high for the second quarter to really reboundfrom the first quarter.”

Estimates of the 66 economists in the Bloomberg survey ranged from 79 to 89.8. The index averaged 89 in the five years before December 2007, when the last recession began, and 64.2 in the 18-month contraction that followed.

Stocks dropped, with the Standard & Poor’s 500 Index heading for its biggest weekly decline since January, as disappointing results from JPMorgan Chase & Co. fueled concern that corporate earnings will be weak. The S&P 500 fell 0.7 percent to 1,820.01 at 10:20 a.m. in New York.

Producer Prices

Another report today showed inflation at the producer level climbed more than forecast last month. The Labor Department’s producer-price index increased 0.5 percent in March, the most since June, after a 0.1 percent decrease the prior month. Services costs rose the most in four years and prices of food accelerated.

Today’s figures are at odds with Bloomberg’s weekly measure of sentiment. The Bloomberg Consumer Comfort Index dropped last week to a two-month low as measures of Americans’ views on the economy, their personal finances and the buying climate all declined.

The Michigan survey’s index of expectations six months from now increased to 73.3, the highest since August, from 70 last month. The gauge of current conditions, which measures respondents’ views of their finances, climbed to a four-month high of 97.1 in April from 95.7.

Food, Fuel

Still, rising gasoline and food prices are straining household budgets. The average price of a gallon of regular gasoline climbed to $3.62 yesterday, the highest since early August, according to AAA, the nation’s largest motoring organization. In 2013, fuel costs averaged $3.49 a gallon.

Americans are paying more at the grocery-store checkout line as well. Food and beverage prices increased 0.4 percent in February, the most since September 2011, after at 0.1 percent rise a month earlier, according to a March 18 Labor Department report.

Today’s figures from the agency showed further increases may be in store. Wholesale food costs jumped 1.1 percent in March, the most since May and led by higher prices for meats, including pork and sausage.

Progress in the labor market may help keep sentiment from faltering. Jobless claims dropped by 32,000 to 300,000 in the week ended April 5, the lowest since May 2007, Labor Department data showed yesterday. The figure was lower than the most optimistic forecast in a Bloomberg survey of economists, while the median estimate called for 320,000 claims.

Job Market

Payrolls, excluding those at government agencies, rose by 192,000 workers in March after a 188,000 gain the previous month that was larger than first estimated, the Labor Department said last week. Private employment exceeded the pre-recession peak for the first time.

The jobless rate held at 6.7 percent last month as an increase of about 500,000 people into the workforce was matched by a similar rise those finding employment, last week’s report also showed.

Figures last week showed consumer spending is on the mend after demand was restrained earlier in the year by bad winter weather. Cars and light trucks sold in March at a 16.3 million annualized rate, the fastest since May 2007, following a 15.3 million pace the prior month. Purchases at General Motors Co., Ford Motor Co., Toyota Motor Corp., Nissan Motor Co. and Chrysler Group LLC all topped analysts’ estimates.

More Momentum

“The incoming indicators are now pointing to some better economic momentum following a weak patch during the first two months of the year, coupled with some supportive policy backdrop, the economy is entering the second quarter on an improved trend,” Ellen Hughes-Cromwick, chief economist at Ford, said on an April 1 conference call. There are “some signs of improving wage and income gains. Very steady consumer confidence is also helping to be a support as we enter the second quarter of economic activity.”

At the same time, lower-income Americans more susceptible to rising food and fuel costs may be pulling back. Family Dollar Stores Inc., the discount chain based in Matthews, North Carolina, announced yesterday plans to close 370 stores as aggressive price-reductions, unusually harsh winter weather and cash-strapped consumers weighed on second-quarter performance.

“Notwithstanding the macro-economic pressure, competitive environment and severe weather, we are not satisfied with our results,” Chief Executive Officer Howard Levine said in a statement. Aside from the immediate closures, the company plans to “slow new store growth beginning in fiscal 2015 to improve our return on investment,” he said.

Federal Reserve

Modest job gains have allowed the Federal Reserve to proceed with reductions in monthly asset purchases while pledging to keep interest rates low.

The policy makers announced another $10 billion trimming of purchases to $55 billion at their March gathering as they unwind a balance sheet that has ballooned to a record $4.24 trillion.

At the same time, the Fed’s target for the federal funds rate has been at zero to 0.25 percent since December 2008. The first rise in that rate won’t occur until the third quarter of 2015, according to the median of 63 economists in a Bloomberg survey conducted April 4-9.

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