The Associated Press
The Conference Board said Tuesday that its index of consumer confidence rose to 78.1 in December, up from 72 in the previous month. November’s figure was revised up from 70.4. The December increase followed three months of declines.
Consumer confidence is nearly back to where it was before the partial government shutdown in October. Steady job gains and a surging stock market have made Americans more optimistic about the economy and hiring both now and in the near future.
“The upbeat consumer mood bodes well for spending in 2014,” said Michael Dolega, senior economist at TD Economics.
Optimism about the job market is at a five-year high. That is a positive sign for a strong December jobs report, which will be released next week.
Consumers’ confidence is closely watched because their spending accounts for 70 percent of economic activity.
The confidence index has averaged 73.3 this year, according to economists at Barclays Capital, the highest since 2007. In 2009, when the economy was in recession for half the year, it averaged 45.2.
But confidence remains below the five-year high of 82.1 reached in June. And that’s still below the reading of 90 that is consistent with a healthy economy.
The report suggests Americans are willing to spend more on large purchases. The percentage of Americans planning to buy a home in the next six months rose to the highest level since July. And the proportion of Americans planning to purchase a major appliance in the next six months rose in December from the previous month.
The increase in plans to buy a home is “very encouraging, leaving us hopeful that gradually rising interest rates will not derail the housing recovery,” Dolega said.
Americans increased their spending in November by the most in five months, led by big gains in auto purchases. While many retailers have reported disappointing holiday sales, consumers appear to be spending at car dealers and on utilities and other services.
Better hiring is putting more money in more Americans’ wallets. Employers have added an average of 200,000 jobs a month in the past four months, a big improvement from the summer. Those gains have helped push the unemployment rate to 7 percent, a five-year low.
There are some weak spots: Income rose at a slower pace than spending last month. That means Americans saved less to spend more. And existing home sales have fallen for three straight months, held back by higher prices and mortgage rates.
Still, the economy expanded at a 4.1 percent annual rate in the third quarter, the best showing in nearly two years. The healthy gain largely reflected a jump in restocking, as companies built up their inventories. That’s unlikely to be repeated in the current quarter. But many economists have become more optimistic about the fourth quarter and expect growth will clock in at a solid 2.5 percent annual rate.