US Michigan consumer sentiment index rises

Confidence among US consumers rose more than forecast in April to its highest level since before the collapse of credit late last year unleashed a financial panic that sent the economy into a freefall.

The Reuters/University of Michigan final index of consumer sentiment rose to 65.1 from 57.3 in March, the biggest gain in more than two years. The index reached a three-decade low of 55.3 in November.

Record-low mortgage rates, cheaper gasoline and surging stock prices are providing some relief to the beleaguered American consumer in the face of mounting unemployment and tumbling home prices. Improved confidence may keep consumers spending, helping pull the economy out of its slump in the second half of the year.

“Consumers are noting the better financial-market conditions and that’s removing some of the panic that had ensued last fall,” said Dean Maki, co-head of US economic research at Barclays Capital Inc in New York. “Consumers are becoming less anxious, and therefore a bit more willing to spend.”

An industry survey showed manufacturing in the US shrank in April at the slowest pace in seven months after a collapse in inventories helped orders and production steady.

The Institute for Supply Management’s factory index rose to 40.1 last month, higher than forecast, from 36.3 in March. Readings less than 50 signal a contraction.

Economists projected the Michigan sentiment index would rise to 61.9, according to the median of 52 estimates in a Bloomberg News survey. Forecasts ranged from 57.3 to 63.

Expectations Improve
The expectations gauge — which more closely predicts the direction of consumer spending — rose to 63.1 from 53.5 in March. A measure of current conditions, which reflects Americans’ perceptions of their financial situation and whether it’s a good time to buy expensive items such as cars, increased to 68.3 from 63.3.

Consumers in today’s report projected an inflation rate of 2.8 per cent over the next 12 months, compared with 2 per cent in the March survey.

Over the next five years, Americans also expected a 2.8 per cent rate of inflation, compared with the 2.6 per cent forecast in March. These figures are tracked by Federal Reserve policy makers.

Christina Romer, head of the White House’s Council of Economic Advisers, yesterday told lawmakers that “glimmers of hope” for an economic recovery were emerging. Still, she added, “in the short run, we are still in for more bad news.”

Consumer Spending
Consumer spending rose at a 2.2 per cent pace in the first quarter following its longest slump in nearly three decades, the government said this week. Still, economists surveyed by Bloomberg in the first week of April forecast spending will slump at a 0.5 per cent rate in the second quarter before picking up in the second half.

Consumers last month were buoyed by a 29 per cent surge in the Standard & Poor’s 500 Index from March 9 lows. Lower gasoline prices, mortgage rates at historic lows and tax refunds are also supporting consumers in the face of numerous headwinds.

Rapid passage of President Barack Obama’s record $787 billion recovery plan, along with announcement of the government’s strategy to boost ailing banks and limit home foreclosures may also be boosting sentiment.

Even so, consumers continue to grapple with falling home prices and concerns over mounting job losses after the longest recession in five decades already claimed 5.1 million jobs. Economists surveyed by Bloomberg forecast unemployment will rise another percentage point to 9.5 per cent by the end of the year.

Many Americans are spending their cash with caution. Walgreen Co Chief Executive Officer Gregory Wasson on April 14 said revenue in April might rise as consumers continue to buy necessities at the second-largest US drugstore chain.

“Non-discretionary items such as staples, food, paper goods and so forth, we are still seeing pretty healthy increases,” Wasson said in an interview. “The consumer is still full of angst out there.”