Confidence among U.S. consumers climbed in May to the highest level in more than five years as views on the economy and labor market improved.
The Conference Board’s index rose to 76.2, the strongest since February 2008 and exceeding the highest estimate in a Bloomberg survey of economists, from a revised 69 in April, data from the New York-based private research group showed today. The median forecast called for an increase to 71.2.
The gain in sentiment coincides with rising property values and stocks that are providing a boost for household balance sheets at the same time the job market heals. Further improvement in Americans’ outlooks may encourage a pickup in consumer spending, which accounts for about 70% of the economy.
“Equity market strength and particularly job growth, that’s really the key,” David Sloan, senior economist at 4Cast Inc. in New York, said before the report. “The economy and confidence will move up together. As employment grows, people can feel more secure in spending.”
Forecasts of the 75 economists surveyed by Bloomberg ranged from 65 to 76 after a previously reported 68.1 in April. The measure averaged 53.7 in the recession that ended in June 2009.
The Conference Board’s gauge of consumer present conditions advanced to 66.7 in May, the highest since May 2008, from 61 a month earlier. The measure of expectations for the next six months jumped to 82.4, the highest since October, from 74.3.
Those expecting business conditions to improve in the next six months climbed to 19.2% in May, the highest since November, from 17.2% the prior month.
The share of consumers expecting more jobs to open in the next six months increased to a five-month high of 16.8% in May from 14.3% in April.
The number of respondents who said jobs are currently plentiful rose to 10.8% in May from 9.7%. The share that said positions were hard to get eased to 36.1% from 36.9%. The difference between those who said jobs were hard to get and respondents who said employment opportunities were plentiful matches December as the smallest since September 2008.
The economy added 219,000 jobs in December, according to Labor Department data, boosted by unseasonably mild temperatures that helped lift industries such as construction.
The share of those expecting their incomes to increase in the next six months fell to 16.6% from 16.8%, today’s figures showed.
“Back-to-back monthly gains suggest that consumer confidence is on the mend and may be regaining the traction it lost due to the fiscal cliff, payroll-tax hike, and sequester,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement.
Today’s figures are in line with other measures of sentiment. The Bloomberg Consumer Comfort Index in the week ended May 19 was close to its highest level since January 2008. The Thomson Reuters/University of Michigan index of preliminary consumer sentiment reading for May posted its strongest reading since July 2007.
Further gains in confidence may help bolster consumer spending after a projected slowdown this quarter. Household purchases are forecast to increase at a 2.1% annualized pace in the third quarter and a 2.5% rate in the final three months of the year, according to a Bloomberg survey of economists from May 3 to May 8.
Spending the in the first quarter increased at a 3.2% annualized rate, the biggest gain since the end of 2010, Commerce Department figures showed April 26. The rise added 2.24 percentage points to economic growth of 2.5%.
An improving labor market, combined with stronger income gains, is needed to fuel bigger gains in spending. A Labor Department report last week showed First time jobless claims fell by 23,000 to 340,000 for the period ended May 18. The unemployment rate was 7.5% in April, a four-year low, and the economy added 165,000 jobs.
Americans’ balance sheets are on the mend as the values of their homes and stock portfolios increase. Another report today showed home prices in 20 U.S. cities rose more than forecast in March. The S&P/Case-Shiller index of property values climbed 10.9% in the year ended in March, the biggest 12-month gain since April 2006.
Stocks are close to all-time highs. The Standard & Poor’s 500 Index has increased 23.8% this year through last week.
Kirkland’s Inc., a Nashville, Tennessee-based retailer of home accessories and gifts, sees signs of strength in spending.
“Recent pockets of improvement in the housing market suggest a lift to consumer confidence and activity,” Robert E. Alderson, president and chief executive officer of Kirkland’s, said May 23 on an earnings conference call. He said that was true “especially for middle-income consumers where housing has traditionally been a risk order of wealth similar to the equity and bond markets for the more affluent.”
At the same time, some households may be held back by the 2 percentage-point increase in the tax that funds Social Security, which took effect at the start of the year after Congress allowed a tax cut to expire. Americans earning $50,000 a year are taking home about $80 less a month.
Workers spent an average of 36% of the additional funds from the tax cut, based on survey data reported by a New York Federal Reserve working paper.