Confidence among U.S. consumers rose in November to the highest level in five months and a gauge of business activity unexpectedly climbed, signaling the recovery is taking hold heading into 2011.
The Conference Board’s sentiment index increased to 54.1, exceeding the median forecast in a Bloomberg News survey, figures from the New York-based research group showed today. The Institute for Supply Management-Chicago Inc. said its business gauge advanced to the highest since April.
Gains in spending that are giving retailers like Wal-Mart Stores Inc. a boost during the holiday-shopping season are more likely to continue into next year as households sense that job and income prospects are improving. The reports helped shares trim earlier losses as an accelerating U.S. economy eased concerns the European debt crisis will deepen.
“The economy has weathered the soft patch and is regaining some lost momentum,” said Ward McCarthy, chief financial economist at Jefferies & Co. Inc. in New York. “Consumers are being fairly jolly as far as the early Christmas season is concerned.”
The Standard & Poor’s 500 Index fell 0.7 percent to 1,179.26 at 11:38 a.m. in New York. The gauge had been down as much as 1.1 percent before the confidence and purchasing managers indexes were released. Treasury securities rose, sending the yield on the benchmark 10-year note down to 2.76 percent from 2.82 percent late yesterday.
Higher than Forecast
Economists forecast the confidence gauge would improve to 53, according to the median of 78 projections in a Bloomberg survey. Estimates ranged from 50 to 60. The index averaged 96.8 during the last economic expansion that ended in December 2007. The Conference Board revised the October index down to 49.9 from a previously reported 50.2.
Another report today showed housing remained the American economy’s weak link. The S&P/Case-Shiller index of home values in 20 cities climbed 0.6 percent in September from the same month in 2009, the smallest gain since January, the last time prices declined year over year. The gauge fell 0.8 percent from the prior month after adjusting for seasonal variations, the biggest drop since April 2009.
Prices are “going to be flat for a while,” Karl Case, retired professor at Wellesley College and a co-founder of the index, said in an interview with Bloomberg Radio. The long run backdrop is “a little discouraging.”
The end of a government tax credit and unemployment near 10 percent have led to a decrease in home sales, delaying a recovery in the industry that precipitated the worst recession since the 1930s. Mounting foreclosures and declining home values threaten to undermine the improvement in consumer confidence that is helping boost spending and growth.
“We are concerned that the further rebound in consumer confidence in November will not translate into a sustained acceleration in consumption growth when the unemployment rate remains high and a double-dip in house prices is underway,” Paul Dales, a U.S. economist at Capital Economics Ltd. in Toronto, said in an e-mail.
Factories, which helped lead the economy out of the recession, are still bolstering the expansion. The Chicago ISM’s business barometer rose to 62.5 in November, exceeding even the highest estimate of economists surveyed by Bloomberg.
Manufacturing may keep accelerating as exports grow and companies invest in new equipment, sustaining the recovery. The group’s production gauge climbed to the highest level since February 2005, and the index of new orders rose to a three-year high.
“Manufacturers still have orders coming in and they have to be filled,” said Thomas Simons, an economist at Jefferies Group Inc. in New York. “There is a lot of foreign demand and a lot of business demand.”
The Conference Board said the improvement in confidence was led by gains in the gauge of expectations for the next six months as household believed more jobs will become available and their incomes will climb.
A Dec. 3 report from the Labor Department is forecast to show the economy created 145,000 jobs in November, according to the median projection in a Bloomberg survey of economists. Employers added 151,000 jobs to payrolls in October, enough to keep the unemployment rate at 9.6 percent.
Retailers had a stronger start to the Christmas holiday shopping period. The average shopper spent 6.4 percent more over the Thanksgiving weekend than last year, the National Retail Federation said Nov. 28. About 212 million people headed to stores and visited websites, spending an average of $365.34.
Wal-Mart and J.C. Penney Co. lured customers with promotions like a $5 Barbie doll and $10 diamond-accented earrings.
A report from Coremetrics today showed online sales rose 19 percent yesterday, coming in as the biggest Internet shopping day of the year so far as Web retailers gained ground on traditional stores.
The economy expanded at a 2.5 percent pace in the third quarter, more than initially estimated, the Commerce Department said last week. Consumer spending rose at the highest rate in almost four years and wage and salary gains were revised up for the past two quarters.
Federal Reserve policy makers remain concerned the economy isn’t growing fast enough to bring down unemployment. Joblessness is forecast to exceed 9 percent through next year, according to a Bloomberg survey earlier this month. Central bankers this month announced they will inject another $600 billion into the financial system by June to help spur the recovery.
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