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Consumer-confidence index jumps to 5-year high

That is according to an unexpectedly strong reading of consumer sentiment from the University of Michigan and Thomson Reuters, released Friday. The report suggests that the holiday shopping season could turn out stronger than forecast.

The widely followed index jumped to 83.1 in October - nearly a five-point gain from the previous month and the highest since September 2007.

Measures of both components of the index - people’s assessment of their current financial conditions and future expectations - went up over the month. Sentiment improved for families making more than $75,000, as well as those making less.

Most analysts had forecast a slight drop in consumer confidence this month, given persistent sluggish growth at home and increasing worries about a global slowdown. Hiring continues to be slow, gas prices remain high, and businesses and many others are concerned about looming tax increases and fiscal spending cuts set to take effect in January.

But consumers seem to be wearing these troubles like a light sweater. The Michigan survey is the third economic report in a week to show a post-recession best.

Last Friday, the Labor Department reported that the unemployment rate fell to a 3 1/2-year low of 7.8 percent in September, and on Thursday officials said new jobless claims last week fell to their lowest level since February 2008.

Although many are skeptical about the big drops in jobless rate and weekly claims, the latest consumer-confidence measure may reflect a pick-up in job growth from spring, more signs of a recovering housing market, and somewhat calmer headlines coming out of the eurozone. Plus, the Federal Reserve last month launched a new round of monetary stimulus and pledged to fight high joblessness with everything it has.

“On the whole, this is a very encouraging report, especially given that the gains were spread out across components of the index, income groups and geographies,” economists at Barclays Bank wrote after the consumer survey’s release. “We expect that consumer sentiment will continue to move higher as the labor market recovery picks up and income trends improve.”

Other economists were more cautious.

“This index tends to reflect the impact from changes in equity and gasoline prices,” said Amna Asaf, an economist at Capital Economics, in a note to clients. The current conditions index tends to track labor market conditions, and that rebounded to a still-modest 88.6.

“Overall, an encouraging report,” Asaf added, “but we would be wary of how much this improvement gets reflected in higher consumption growth in the fourth quarter.”

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©2012 Tribune Co.

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Distributed by MCT Information Services

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