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Consumer Sentiment, Spending Trending Up at Year End
WASHINGTON (12/26/13)--A pair of reports published Monday indicate that consumers are in a jolly mood this holiday season.
 
A final monthly reading from the University of Michigan showed that consumer confidence in December held steady at 82.5, while Commerce Department data showed that household spending rose this month by 0.5%. Both measures are at five-month highs.
 
The University of Michigan index rose by 7.4% from November, with its current economic conditions component up 10.6 points to 98.6 and its economic outlook survey up 5.3 points to 72.1. The former was revised up by 0.7 points, and the latter was revised down by 0.6 points.
 
The Commerce Department monthly consumer spending measurement was up for the seventh straight month, with November's increase in inflation-adjusted spending the largest since February 2012 (Reuters Dec. 23).
 
Reuters said that the monthly increase in consumer spending will probably see the measure rise in the fourth quarter. In the third quarter, consumer spending was up on a 2% annual basis, bringing annualized GDP growth up to 4.1%.
 
The newswire also reported that the International Monetary Fund announced Sunday that it would upwardly revise its growth forecast for the U.S.--currently a 2.6% estimate made in October. Consumer expenditures account for roughly 70% of the economy.
 
Bloomberg, however, warned that the gains might not last. Incomes were only up by 0.2% in November, buoyed by a 0.4% gain in wages and salaries. The firm's analysts had predicted a gain of 0.5% (Bloomberg.com Dec. 23). Meanwhile, the saving rate dropped to 4.2%, the lowest since February, down from 4.5%.
 
The firm did point out that consumer expenditures are being lifted by improving labor markets, lower gas prices and rising home values and stock prices. Outlays on durable goods, including automotive purchases, were up by 2.2% in November after increasing by 1.2% in October--the largest monthly increase in a year.
 
The same factors have driven the University of Michigan consumer confidence index to its current five month high. In July, it was at a six-year high (Economy.com Dec. 23).
 
Moody's analysts said that the assessment was likely a result of additions to the payrolls over October and November, and the relatively insignificant long-term impact of October's partial government shutdown.
 
A survey of economists conducted by MarketWatch predicted the measurement would be revised higher, to 82.9, due to stock gains, the progress on a budget deal in Congress and other factors (MarketWatch Dec. 23).
 
Economists polled by Bloomberg estimated a final reading ranging from 77 to 85 (Bloomberg.com Dec. 23). The financial analysis firm said that the index averaged 89 in the years leading up to the Great Recession and averaged 64.2 during the contraction's official 18-month run.
 
Moody's analysts also cautioned against reading too much into the data. They said that disposable personal income only rose by 0.1% between October and November, and the growth of income on a year-over-year basis only rose by 2.3%, its weakest pace since May 2010. There is little upward pressure on wage growth, with three job-seekers for every job opening nationally. The research and ratings firm also warned that the recent Congressional budget deal has not raised the debt ceiling, which the Treasury Department estimates will be breached in late February.


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