NEW YORK — Buoyed by declining gas prices and an improved jobs forecast, consumer confidence in November posted the biggest increase in more than two years as retailers begin the holiday selling season.
The Consumer Confidence Index rose this month to 98.9 from 85.2 in October. The index, based on a monthly survey by The Conference Board, a New York-based research group, fell in October for the second straight month to 85.2 from 87.5 in September. The components that make up the Index also rose, with the Present Situation Index increasing to 114 from 107.8 and the Expectations Index surging to 88.8 from 70.1 last month.
The cutoff date for the month’s survey was Nov. 16, which preceded the announcements of 30,000 job cuts at General Motors and 7,000 planned layoffs at Merck.
“Consumer confidence was going to rebound based upon the steady job situation, total lack of inflation in consumer goods and the big dip in energy prices,” said Richard Hastings, retail analyst at Bernard Sands. “The layoffs kicking in from some big employers like GM and Merck will have almost no impact, other than to spark some concern that other big employers might do the same one day. But for now, it’s all systems go.”
The “decline of more than 40 cents in gasoline prices this month and the improving job outlook have combined to help restore consumers’ confidence,” Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.
While the Index remains below its pre-Hurricane Katrina levels of 105.5 in August, the “shock of the hurricanes and subsequent leap in gas prices has begun wearing off just in time for the holiday season,” Franco said. “Despite this latest boost in confidence, holiday spending will be driven by the bargains consumers have come to expect.”
The percentage of individuals in the latest survey who rated jobs as hard to get fell 2.1 points to 23.2 percent, and those saying jobs were plentiful edged up 0.1 point to 20.8 percent. Maury Harris, economist at UBS Securities, wrote in a research note that he expects a “sharp acceleration in payrolls in the November employment report after a 56,000 gain in October.” UBS projects a gain of 250,000 jobs, while the consensus estimate is 210,000.
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Harris noted that the expectations component, which he wrote correlates more closely with spending growth than the overall index, seems “consistent with a 3 percent trend in annualized real consumer spending growth, up sharply from October’s” 1 percent. Harris said actual fourth-quarter real consumption growth is likely to be below 3 percent at an annual rate due solely to the decline in auto sales after a surge in the third quarter. “Non-auto spending looks on track to be up at close to a 4 percent pace,” he concluded.
On the expectations front, retail analyst Emme Kozloff at Bernstein Research wrote in a note that a higher percentage of consumers polled this month felt that business conditions would be better in six months. She wrote that when breaking out confidence by income level, all groups improved from October, with those having annual incomes between $15,000 and $25,000 increasing the most, rising 34 percent from last month. It is also the only group to have surpassed confidence levels before the arrival of Hurricane Katrina. By age, all groups also gained confidence, with those between ages 35 and 54 rising the most at 21 percent.
“The strong rebound in consumer confidence is reassuring going into the all-important holiday season given the potential negative carryover effect from hurricanes and volatile energy prices,” Kozloff wrote.
She cautioned that because data points on sales performance over the Thanksgiving holiday have been wildly conflicting it is difficult to interpret how much the increase in confidence affected shopping during the weekend. The only certainty, she wrote, is the highly promotional environment.
“We expect the sector to remain volatile as each data point surrounding the holidays is scrutinized for its implications,” she concluded.