U.S. confidence unexpectedly rose in February

Confidence among U.S. consumers unexpectedly rose in February as Americans became more hopeful about economic growth.

The Thomson Reuters/University of Michigan final index of consumer sentiment increased to 75.3 from 75 in January. The median estimate in a Bloomberg News survey called for 73, which was above the 72.5 preliminary reading. The gauge averaged 89 in the five years before the 18-month recession that ended in June 2009.

Fewer job cuts, faster payroll growth and rallying stock prices are supporting consumer sentiment and the spending that accounts for about 70 percent of the economy. Higher gasoline costs may hold further confidence gains in check.

“The economy should kick back into gear as people start to expect more improvement on top of what’s gotten better,” Alex Hoder an economist at FTN Financial in New York, said before the report. “The labor market is improving and with it so are the headlines.”

Estimates for sentiment in the Bloomberg survey of 60 economists ranged from 71 to 76. The index averaged 64.2 during the last recession.

Today’s report parallels another confidence measure released yesterday. The Bloomberg Consumer Comfort Index climbed to minus 38.4, the highest level this year, in the period ended Feb. 19.

Consumer Expectations

The Michigan survey’s index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, rose to 70.3 this month from 69.1 in January. The February number is the highest in a year.

The index of current conditions, which reflects Americans’ perceptions of their financial situation and whether they consider it a good time to buy big-ticket items like cars, decreased to 83 from 84.2 the prior month.

Consumers in today’s confidence report said they expect an inflation rate of 3.3 percent over the next 12 months, unchanged from January.

Over the next five years, the range tracked by Federal Reserve policy makers, Americans expect a 2.9 percent rate of inflation, up from 2.7 percent in January.

Escalating fuel costs may eat into households’ incomes, reducing their ability to maintain current spending levels. A gallon of regular unleaded gasoline climbed to $3.65 yesterday from $3.28 at the end of 2011, according to AAA, the nation’s largest automobile association. Fuel prices dropped to a 10- month low of $3.21 on Dec. 20.

$5 Gasoline

“If the predictions come true that the gas gets to be close to $5 this summer, that is not good for our business, that’s not good for the consumer, it takes away discretionary dollars,” Mike Riccio, chief financial officer at furniture maker La-Z-Boy Inc., said during a Feb. 22 conference call. “We got a mindful eye on that.”

Better job growth and reduced job cuts could help offset rising energy prices. The unemployment rate in January declined to 8.3 percent, the lowest since February 2009, while the economy generated 243,000 jobs, the most in nine months, Labor Department data showed on Feb. 3. The number of jobless claims held this week at the lowest level since March 2008, Labor Department data showed yesterday.

Higher stock prices could also make Americans feel wealthier. The Dow Jones Industrial Average rose above 13,000 this week for the first time since May 2008. The index gained 22 percent through yesterday after a recent low on October 3 last year.