Optimistic US shoppers calm fears of fresh slump
Eyes turn to whether Europe can follow suit and gain stability to help lift stock markets
Consumer confidence in the US has rebounded to some of its best levels since the onset of the financial crisis and the Great Recession, setting up an optimistic start to the new year for the world's largest economy.
With 70 per cent of US gross domestic product dependent on consumer spending, and the American shopper the ultimate buyer of much of the world's manufacturing output, economists are looking to consumer confidence as one of the most important indicators of the outlook for the next 12 months.
The Consumer Board survey for December, released yesterday, showed an index reading of 64.5, up from a revised 55.2 the previous month and significantly beating forecasts. The consensus of economists' estimates was 59, and even the most optimistic forecast was 63.
Americans' improving impression of the jobs market was the main reason for the rising confidence. Almost 42 per cent still said jobs are hard to come by, but that is the lowest since the recovery began. US unemployment dropped below 9 per cent in November to its lowest since March 2009.
The headline index figure of 64.5 is the best since April and the third-highest of the recovery. The best level this year was 72 in February, but it fell back sharply amid political squabbling, bad news on the eurozone and a manufacturing downturn that resulted from the tsunami in Japan. Talk of a relapse into recession appears to have subsided.
In an Associated Press survey of leading economists, also out yesterday, the consensus forecast for US growth in 2012 was 2.4 per cent. GDP growth in 2011 is unlikely to top 2 per cent.
If Europe can stabilise its economies, the US stock market would rally sharply and prospects for the recovery would be even brighter, according to the poll. "Europe appears to be the only real impediment to keeping this recovery from happening," said Joel Naroff, president of Naroff Economics.
Despite the optimistic signs, growth of 2.4 per cent by the US economy would hardly represent a return to boom times. The Federal Reserve and economists typically regard 3 per cent growth as the trend rate of the US economy. And there continue to be unresolved problems in parts of the US economy, including its housing market, where foreclosed homes still flood the market. US equity markets did not rise sharply in response to the consumer confidence jump, partly because of more gloomy historic data on house prices.
The S&P Case-Shiller index of house prices, which tracks the performance of 20 metropolitan areas across the US, showed an average decline of 3.4 per cent on the same month in 2010.
"In the October data, the only good news is some improvement in the annual rates of change in home prices, with 14 of 20 cities and both Composites seeing their annual rates of change improve," said David Blitzer, chairman of the index committee at S&P Indices.
Not all retailers are enjoying the festive season, despite positive anecdotal evidence of busy shopping malls in the days after Christmas. Sears, which owns the department stores of that name and the Kmart discount chain, issued a profit warning and said it would close 120 of its 2,177 US stores.