Consumers Back on Track?

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The one sector of the economy that can revive growth—consumers—look to finally believe the Great Recession is over. Consumer sentiment unexpectedly rose to its highest in five years in October as consumers became more optimistic about the economy in a possible boost to President Obama's reelection hopes, said Thomson Reuters Inside Debt Blog.

Graph: Inside Debt

The Thomson Reuters/University of Michigan's preliminary October reading on the overall index on consumer sentiment came in at 83.1, up from 78.3 the month before, and the highest since September 2007, the survey showed.

There are several reasons for their revival—the first being the drop to a 7.8 percent unemployment rate, with both hours worked and salaries rising. Consumers felt better about the economy in both the long and the short term, the compilers of the Thomson Reuters/University of Michigan survey said. The survey's gauge of consumer expectations jumped to 79.5 from 73.5, well above an expected reading of 74. The survey's barometer of current economic conditions rose to 88.6 from 85.7 and was above a forecast of 86.

Graph: Econoday

Weekly initial jobless claims also plunged, a sign that employment should continue to improve. Claims fell to 339,000 in the October 6 week for a 30,000 decline that's the biggest since July. The 339,000 level is the best reading of the recovery, said Econoday. The four-week average is down 11,500 to 364,000 and is now trending more than 10,000 below the month-ago comparison in what points to improvement for both payroll growth and the unemployment rate.

Graph: Econoday

Lastly, September’s unemployment report showed rising incomes. Average hourly earnings growth improved to 0.3 percent in September, following no change in August.  Analysts forecast a 0.2 percent rise.  The average workweek nudged up to 34.5 hours in September from 34.4 hours in August.  Expectations were for 34.4 hours.

And, the latest payroll data includes semi-annual benchmark revisions, as we have said. According to more complete data, payrolls were reportedly undercounted by 386,000 over the April 2011 through March 2012 period, resulting in an average 32,000 higher gain per month than earlier estimated.

So we know why consumers are feeling more confident about their future prospects, a merrier holiday season, and an improving economy. They power 70 percent of all domestic (GDP) activity.

Harlan Green © 2012