NEW YORK – A gain in confidence levels shows that consumers are happier now at the end of 2005 than they were at the start of the year, but that’s not necessarily much of an improvement from a year ago.
Consumer confidence rose in December, bringing the Conference Board’s index to a level that is nearly what it was before the arrival of Hurricane Katrina. Consumers were buoyed mostly by a drop in gas prices and, in part, perceived strength in the job market, the Conference Board said on Wednesday.
The Conference Board’s Consumer Confidence Index, which rebounded in November, advanced again in December to 103.6, up from 98.3 last month. The consensus estimate of many economists was around 103. The gain was boosted by a surge in the Present Situation component of the index, which jumped to 121.5 from 113.2. Also rising was the Expectations component, which rose to 91.6 from 88.4 last month.
“Consumer confidence continues to bounce back and is now at its highest level since Hurricane Katrina struck the Gulf Coast,” said Lynn Franco, director of The Conference Board Consumer Research Center, in a statement.
She noted the “resiliency of the economy, recent declines in prices at the pump and job growth have consumers feeling more confident at yearend than they felt at the start of 2005.”
There has been improvement with respect to consumers’ assessment of current conditions, and although expectations still remain below earlier levels, the Conference Board concluded that consumers are “confident that the economy will continue to expand in 2006.”
As for current-day conditions, consumers who claimed that business conditions are “bad” decreased to 14.7 percent from 17.9 percent. On the labor front, consumers who felt that jobs are “hard to get” declined to 22.2 percent from 23.6 percent, while those those who claimed jobs are “plentiful” inched up to 23.3 percent from 21.1 percent.
David Rosenberg, economist at Merrill Lynch, observed, “Consumer confidence is showing gradual improvement since hitting [the] lows in the wake of the Gulf Coast hurricanes, but finishes the year less than one point above last December’s level. This is in line with our call that consumer spending growth will be slower next year as consumers struggle under the burden of record debt, negative savings, high fuel prices and rising administered interest rates.”
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Rosenberg concluded that “when all is said and done, confidence has shown very little improvement over the past year. The headline index is less than one point above last December’s level, with the expectations component more than nine points lower than one year ago.”
UBS economist Maury Harris in his report pointed out that while the consumer numbers still look fairly strong, some of that strength may fade in coming months if housing continues to weaken.
“The mortgage applications data suggest home sales are already weakening; we expect some slowing in home prices – and wealth effects – to follow,” Harris concluded in his report.
Retailers are due to report same-store sales results on Jan. 6 and already there is some concern about fourth-quarter results. Merrill Lynch specialty retail analyst Mark Friedman wrote in a research note Wednesday that the increased promotional environment will “continue to cause concerns about earnings strength in the quarter.” He noted that specialty retail stocks historically have underperformed in December.
Friedman’s colleagues Stacy Turnoff and Kevin Boler, who cover the department and dollar store channels, wrote in their Wednesday research note that sales were at the low end last week, which means this week’s post-holiday sales will be more critical in driving business for the month. They wrote that the “Saturday prior to Christmas did not appear as strong as most anticipated.”
Citing information from Spending Pulse, a retail-sales data service from MasterCard, Turnoff and Boler wrote that purchases during the holiday season above $1,000 grew 13 percent; those between $500 and $999 rose 12 percent, and sales below $100 gained 5.9 percent. Sales were strongest in the Southeast, up 11 percent; followed by the West, up 9.6 percent; the North Central and mid-Atlantic regions, each up 8.4 percent; the Northeast, up 6.9 percent, and the Great Plains, up 5.3 percent.