Consumer mood hits updraft in August

Index: U.S. spirits highest in 7 years

Consumer confidence in the U.S. unexpectedly climbed in August to the highest level in almost seven years, reinforcing signs of a strengthening outlook for the economy in the second half of 2014.


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The Conference Board's sentiment gauge rose to 92.4, the highest since October 2007, from a revised 90.3 a month earlier, the New York-based private research group said Tuesday.

Americans are finding more reasons to be upbeat about their prospects for the rest of the year as recent reports pointed to a pickup in the job market and as stock prices advanced to records. Stronger sentiment also will help underpin consumer spending, which makes up almost 70 percent of the economy.

"Consumer confidence can sustain these high levels and even build on it a little," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. "The key driver is the labor market, and the numbers there have been showing an improvement."

U.S. stocks rose Tuesday as traders responded to the consumer confidence report and a report of strong demand for airplanes, machinery and other manufactured items. The Standard & Poor's 500 Index closed above 2,000 for the first time, rising 0.1 percent to 2,000.02, after climbing as high as 2,005.04. The Dow Jones industrial average rose 29.83 points to 17,106.70.

The Conference Board's barometer of present conditions increased to 94.6, the highest since February 2008, from July's 87.9. A gauge of consumer expectations for the next six months declined to 90.9 from 91.9 a month earlier.

"Consumers were marginally less optimistic about the short-term outlook compared to July, primarily due to concerns about their earnings," Lynn Franco, director of economic indicators at the Conference Board, said in a statement. "Overall, however, they remain quite positive about the short-term outlooks for the economy and labor market."

The survey found that Americans' outlook on the job market brightened considerably. The percentage of respondents who said jobs were "plentiful" rose to 18.2 percent from 15.6 percent in July. That's the highest level since 2008. Consumers' perceptions generally track the unemployment rate over time.

The "substantial improvement in August points to another strong employment report next week," said Ted Wieseman, an economist at Morgan Stanley.

Results of a survey released Tuesday measuring the spending and savings rates of residents of Arkansas, Oklahoma and Missouri showed a population uneasy about the economy.

According to the Arvest Consumer Sentiment Survey, 61 percent of respondents in the three-state region did not make a major purchase -- such as a television, refrigerator or furniture -- over the past six months. Arkansas residents kept their spending tightest with 65 percent of respondents not making a major purchase; Missouri stood at 62 percent; and Oklahoma had the freest spending at 57 percent.

Arkansans said they saved 9.5 percent of their income, the lowest amount in the survey. Regionally, respondents said they saved 11.6 percent of their income, with Oklahoma with the highest rate at 13.1 percent and Missouri second with 11.7 percent.

Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville, said the survey results show that Arkansas consumers and their neighbors are still concerned about the economy and are not seeing signs the recovery will reach them any time soon.

"They know the state of the world," Deck said.

Marc Fusaro, associate professor of economics at Arkansas Tech University's College of Business in Russellville, said the survey included a lot of useful data comparing Arkansas to its neighboring states but it will become more valuable as time goes by so it can be used for direct comparisons.

He said in general, Arkansas trailed Oklahoma and Missouri in most measures. He said the lack of spending on major purchases can be a signal of timidity and lack of confidence in the overall economy.

Fusaro noted one area where Arkansas bested Oklahoma and Missouri was in planned household savings rates. Regionally 17 percent of respondents said they planned to increase their amount of savings. In Arkansas, 23 percent said they intend to increase their savings, while those in Missouri and Oklahoma reported 15 percent intended to increase savings.

"Saving is good for the overall economy," Fusaro said.

The Arvest survey was conducted between June and July and has been released in three sections, with the savings and spending section the last in the series. Results are based on telephone interviews of 400 residents from each state with a margin of error of 4.2 percentage points. The survey findings will be released two times a year.

The survey is similar to the national monthly Survey of Consumers, conducted by the University of Michigan for Thomson Reuters. That report's preliminary index of consumer sentiment dropped in August to a nine-month low.

The weekly Bloomberg Consumer Comfort Index cooled in the period ended Aug. 17 as Americans became less upbeat about the buying climate, and a measure tracking the economic outlook eased in August to a three-month low.

The economic reports released Tuesday are additional evidence to some economists that the U.S. economy is continuing to improve, slowly.

Steady and solid hiring this year has provided more Americans with paychecks to spend. Employers have added an average of 230,000 jobs a month this year, up from about 195,000 a month in 2013. Average monthly job gains since February have produced the best six-month stretch since 2006.

The unemployment rate ticked up to 6.2 percent in July from 6.1 percent in June. But that was because more Americans began looking for work. Most didn't immediately find jobs, but the increase in people looking for work suggests that they are more confident about their prospects. The unemployment rate in Arkansas in July was 6.2 percent, down from 6.3 percent in June.

Overall orders for durable goods in July jumped by 22.6 percent, the Commerce Department said Tuesday. It was the biggest one-month increase since the department began compiling this data in 1992.

That strength, though, was exaggerated by a huge surge in demand for airplanes at Boeing.

Excluding the always-volatile transportation sector, core capital goods orders fell by 0.5 percent in July, but remain up more than 11 percent over the past three months on an annualized basis.

"The U.S. economy is on solid ground," said Nariman Behravesh, chief economist at IHS, responding to news about Tuesday's economic reports. "Europe is struggling, Japan is struggling, but all of this suggests the U.S. is doing quite well."

Information for this article was contributed by Shobhana Chandra and Alex Tanzi of Bloomberg News; by John Magsam of the Arkansas Democrat-Gazette; by Nelson D. Schwartz of The New York Times; and by Christopher S. Rugaber of The Associated Press.

A Section on 08/27/2014

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