Consumers gaining confidence in economy

Saturday, February 11, 2006

The new reading was the best since October 2004.

WASHINGTON -- Consumers' confidence in the economy and their own financial fortunes climbed to a 16-month high as better prospects for jobs and wages lifted people's spirits.

The RBC CASH (Consumer Attitudes and Spending by Household) Index, based on results from the international polling firm Ipsos, showed that confidence clocked in at 96.1 in early February, marking a big improvement from January's 78.2. The new confidence reading was the best since October 2004.

The confidence revival also was helped by mild winter weather which meant that home heating bills weren't nearly as bad as many thought they would be, analysts said.

Even with the good news on consumer confidence, President Bush's overall job approval was still near the lowest levels of his presidency, according to a new AP-Ipsos poll.

With Americans' feelings about the economy brightening in February, consumer confidence now appears back on firm footing. Confidence, shaken in the late summer and into the fall by the devastating Gulf Coast hurricanes and soaring energy prices, started off 2006 with a limp showing.

"I think that consumers' psyches are in remarkably good shape, particularly having come off a year where we had natural disasters that filtered through to affect virtually every household," said Gregory Miller, chief economist at SunTrust Banks.

The latest confidence reading follows positive news on the employment front.

The government reported last week that the nation's unemployment rate dropped to 4.7 percent in January, the lowest in 4 1/2 years.

And wages, which had trailed inflation for most workers last year, showed a solid gain.

"The improving job market is boosting consumer sentiment," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group. "Employees are beginning to see a somewhat better chance of receiving wage increases this year. If oil prices stabilize as we expect, consumers this year should see their paychecks stay ahead of inflation."

Yet, the good jobs news and consumers' better feelings about economic conditions aren't helping Bush's overall standing with Americans. The president's job-approval rating is holding steady at 40 percent -- near his lowest-ever showing -- according to the AP-Ipsos poll.

That poll also showed that Americans still would like to see Democrats take control of Congress, where Republicans currently hold the majority in both chambers. Elections take place in November.

Almost half, 47 percent, picked Democrats and 37 percent chose Republicans on the question of which party they wanted to control Congress -- close to the Democratic edge in last month's AP-Ipsos poll.

On the confidence front, economists track this barometer for indications about consumers' willingness to spend, an important shaper of overall economic activity.

Economists predict the economy will grow at a brisk pace of around 4 percent in the January-to-March quarter.

In the final quarter of 2005, the economy posted its worst showing in three years, expanding at an anemic 1.1 percent annual rate as consumers, businesses and government tightened their belts.

The overall confidence index is benchmarked to a 100 reading on January 2002, when Ipsos started the gauge.

A measure on consumers' feeling about jobs rose to 119.3 in February, up from 106 in January. The new reading also showed that people's sentiments about the jobs climate have improved from a year ago, when this jobs gauge stood at 107.5.

"That was a gust of wind in the spinnaker," said Brian Bethune, economist at Global Insight.

Consumers' attitudes about current economic conditions came in at 111.6 in February, the highest on record. In January, this gauge was at 96.5.

A measure looking at consumers' economic expectations over the next six months, including conditions where they live or work and their own financial positions, climbed to 59.4 in February. That was up from 33.9 in January and 58.6 a year ago. This measure was hard hit by fallout from the hurricanes and has been recovering slowly.

Another index tracking consumers' feelings about making a purchase, saving and other investment decisions jumped to 101.5 in February, up from 89.3 in January. A year ago, this measure stood at 80. A string of mostly positive earnings reports from companies, higher interest rates for savers and still good long-term mortgage rates for prospective home buyers probably factored into the improvement, analysts said.

The RBC consumer confidence index and the AP-Ipsos poll for February were based on results of 1,000 adults surveyed Monday through Wednesday about their attitudes on politics, personal finance and the economy. Results of the surveys each had a margin of error of plus or minus 3 percentage points.

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