Minn. retailers likely to benefit from rise in consumer sentiment
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(Bloomberg) -- Confidence among U.S. consumers increased more than forecast in December to the highest level in six months, at the same time Americans began stepping up holiday spending.
The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 74.2 from 71.6 at the end of November. Economists had projected a reading of 72.5, according to the median estimate in a Bloomberg News survey.
The increased optimism may be tied to rising stock prices and an agreement between President Barack Obama and Republicans to keep tax rates from rising next year. Higher confidence is being reflected in increased holiday sales that are benefiting retailers such as Target Corp. and Best Buy Co.
Expectations are "a good indication of where the consumer is going to be in the new year," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. "Two months in a row of increased sentiment is definitely more hopeful."
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The sentiment index averaged 89 in the five years leading up to the recession that began in December 2007.
January 2008
The survey's measure of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars, increased to 85.7, the highest since January 2008, from 82.1 a month earlier.
Consumer expectations for six months from now, which more closely projects the direction of consumer spending, increased to a six-month high of 66.8 from 64.8, today's confidence report showed.
Higher stock prices and signs tax rates will be kept from increasing may have lifted Americans' spirits. Obama's agreement this week to prolong income-tax cuts put in place by former President George W. Bush may raise gross domestic product next year by as much as half a percentage point, to about 3.1 percent, said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York.
Inflation Expectations
Consumers in today's survey said they expect an inflation rate of 2.9 percent over the next 12 months, compared with 3 percent projected in November. Over the next five years, the figures tracked by Federal Reserve policy makers, Americans expect a 2.7 percent rate after a 2.8 percent rate projection last month.
U.S. central bankers have their final policy meeting of 2010 on Dec. 14 and are likely to reaffirm their strategy to purchase $600 billion in Treasury securities by June to help bolster an economy restrained by joblessness.
Unemployment rose to 9.8 percent last month, the highest since April and close to a 26-year high, Labor Department figures showed Dec. 3. The economy generated 39,000 jobs in November after 172,000 a month earlier, indicating companies lack much appetite to expand their payrolls.
Limited job growth helps explain why retailers such as Target, Limited Brands Inc. and Costco Wholesale Corp. have used discounts to bring in shoppers, particularly during the Thanksgiving weekend. Results of their efforts show sales increased more than analysts estimated in November.
December Sales
The National Retail Federation forecast November to December sales will rise by 2.3 percent from the same time in 2009, making it the best holiday shopping season in four years. The International Council of Shopping Centers said it expects December sales to rise as much as 3.5 percent compared with last year.
Teen retailer Abercrombie & Fitch Co. reported a 22 percent increase in November sales at stores open at least a year, while J.C. Penney Co., the third-largest U.S. department store chain, said sales climbed 9.2 percent. The holiday season "has gotten off to a strong start," Plano, Texas-based J.C. Penney said in a Dec. 2 statement.
Home Depot Inc., the world's largest home-improvement retailer, increased its full-year profit forecast on stronger fourth-quarter demand for plumbing and electrical items and Christmas trees.
"As we look at November into December, we see strength across the store," Chief Financial Officer Carol Tome said Dec. 8 by telephone from an analysts' meeting in Boston.
