Consumer sentiment rises for good reason

Increased retail, housing and auto spending, combined with recent jobs figures, show the economy gaining momentum heading into the holiday season.

By Jason Notte Oct 12, 2012 2:01PM

Car salesman showing couple new silver hatchback in car showroom, opening boot, smiling, side view copyright Juice Images, Cultura, Getty ImagesConsumer sentiment rose to its highest level in five years on Friday and may have signaled something that will make economic skeptics spit at their screens and scrawl lengthy screeds into comments fields well after Election Day.

It's called a comeback.

The University of Michigan/Thompson Reuters (TRI) consumer sentiment index for October rose to 83.1, its highest level since September 2007. No one seemed more surprised than the folks at the University of Michigan and Reuters, who expected the index to top out at 78.5.

Combined with last week's jobs report from the Bureau of Labor Statistics, which reduced the unemployment rate from 8.1% to 7.8% and added 873,000 jobs to the rolls -- the highest tally in nine years -- the consumer sentiment result is a burst of positivity in an economy accustomed to the negative. It should also give conspiracy theorists plenty to chew on.

The retail business community not only embraces that consumer sentiment figure, but may have predicted it. Wal-Mart (WMT) is expecting a big boost this holiday season after U.S. layaway sales rose to $400 million in less than a month. That's about half the amount shoppers put on hold for all of 2011. The big-box retailer is also ordering twice as many Apple (AAPL) iPads for the holidays as last year and increasing expansion plans to 240 stories in fiscal 2014. It expects sales to rise by 5% to 7%.

That's even more rose-colored than the National Retail Federation's prediction that this year's holiday sales at its more than 9,000 member retailers will increase 4.1% to $586.1 billion. That's higher than the 10-year average holiday sales increase of 3.5% and follows last year's 4.6% increase. 

Market research firm NPD Group backs up the NRF's talk with a survey that found 77% of Americans plan to spend as much or more this holiday season than they did last year. That's up from 73% of consumers who said the same before the 2011 holiday season, while the percentage of consumers who plan to spend less decreased from 27% last year to 23% this year.

It's all a bit optimistic, but then again so are many of the consumer spending indicators released recently. Existing home sales jumped 7.8% in August from the same time last year, while the national median home price has increased for six straight months to $187,000, according to the National Association of Realtors. That's 9.5% higher than it was during the same period in 2011 and supported by the S&P/Case-Shiller index of home values in 20 cities, which climbed 1.2% in July from the same time last year. That was the index's biggest 12-month jump since August 2010.

The new housing market's also showing signs of life. Building permits were up 24.5% in August from the same period in 2011 and new housing starts jumping 29.1% during the same span.

Americans are buying more cars to stick in those new driveways and garages, too. Auto sales increased 12.8% in September and are up 14.5% year-to-date from 2011, according to research from Autodata. All together, the auto industry is currently on pace to sell 14.94 million vehicles and hasn't been selling this strongly since March 2008.

Even the markets seem to like where this is going. The S&P 500 Index is up more than 13.9% for the year and reached its highest level since December 2007 in mid-September.

Some of the optimism above figures still falls a bit shy of pre-recession levels and is contingent on consumers actually coming through with some sales in the last quarter. When the Commerce Department last checked in on consumer spending in August, it was limping to a 0.1% gain following a 0.4% gain in July. But with consumer confidence and some telling sales numbers already at pre-recession levels, folks who hate good economic news are going to have a lot to stew over for the next few months.

Oct 12, 2012 2:50PM
Consumer Confidence soars must be on planet Mars ? Go figure gas at $ 4.70 gallon for regular !  Food prices rising every week. Unemployment if you don't cook the books is at 22% and rising ! But Hey !   DON'T WORRY ABOUT !   ALL IS GOOD !
Oct 12, 2012 3:48PM

Those darned "Chicago guys" got to the folks at UofM/Thompson-Reuters too!! Where is Jack Welch?

Oct 12, 2012 3:24PM
Socialized wall street has no clue ! I have a question for them ? With all your Bush tax cuts for over 10 yrs where are all the jobs at so called job creators on wall street ? LMFAO ! Still looking ! And so is America ! The so called investors are truly a joke like the Feds! QE1 did nothing QE2 did northing! And now QE3 is another dud .. Its doing nothing but running the printing presses at full speed devaluing the US dollar.. And to the wall street speculators? Keep making the price of oil unstable OK??? So the World economies cannot recover ! < Truly no sound investing principals any more by you idiots. And when the meltdown came ? YOU ALL had the US government ME OUR TAX MONEY bailout wall street banks ! U know that too big to fail mantra ? LOL Most Americans would have lost nothing because our deposits are FDIC... But you pukes on wall street would have lost BIG... So the US treasury and the FEDs gave you a socialized bailout ! Capitalism did not work ! Its that simple. During the savings and loan fiasco in the late 80s ? You all went out of biz.. and the FDIC took care of all Americans accounts.. THAS CAPITALISM .... And in the meltdown Americans lost 3/4ths of the value of their homes thanks to the wall street socialized bailout ! So SCREW YOU ALL ON WALL STREET... And Chrysler paid their loan off !!!!! YO WALL STREET The US tax payer is looking for their money ! < Scum bags on wall street...
Oct 12, 2012 5:04PM

Consumer sentiment is rising becuase home prices have quit falling in most markets.  The stock market has done even better, with the major indexes back to pre-crash levels.  No one wants to make a major purchase when their biggest investments are under water.


With the country split nearly 50/50 it really won't matter who wins in November.  Neither side will have enough votes to make any drastic changes.  I'm not happy with either political party, but what really p*sses me off is watching corporations and billionaires spend obscene amounts of money to buy elections. The U.S. is well on its way toward becoming a plutocracy. 

Oct 12, 2012 3:48PM

The reason for the unexpected rise in consumer confidence is people are now feeling Mitt Romney will be the President and the Fraud - Empty Chair will be in the unemployment line.


Here is one for everybody.


We had millions for SOLYNDRA and other solar companies "called winners" but we could not give 4 Amercian citizens serving our country abroad more security, even though we all knew of the unrest and even though they asked for it.  I guess American citizens are "LOSERS".  It is disgusting.

Oct 12, 2012 6:55PM
In the above video, taken at April 3, 1987 campaign stop in Claremont, New Hampshire, Biden can be seen sparring with a voter who questioned his academic credentials. Biden responded, “I think I have a much higher I.Q. than you do I suspect. I went to law school on a full academic scholarship — the only one in my class to have a full academic scholarship.” Biden went on to claim that he graduated in the top half of his law school. Problem is, none of that is true.” -Eduardo89rp
Oct 12, 2012 6:38PM
I agree there is not much different(at least for retired me) between the two parties or even between the presidents. whoever gets in will have to moderate or stay stalemated. HOWEVER it would appear that Romney, the neocons  and the GOP or plan   to expand the military and seem awfully anxious to get us into more wars; niot onlyin the mideast but with China and Russia. It is freaking scary since they don't even deny it.
Oct 13, 2012 12:33PM

Typically democrat....  Obama is ARROGANT, Lazy, Corrupt and Stupid.  His policies of Borrowing, Printing, Taxing and SPENDING will not bring about Prosperity.  His support for big banks at the expense of the middle class will not end well.


He spend 860 Billion in stimulus.  His 6 trillion in new debt is  equivilent to 72,000 per family of four.  Did your family recieve 72,000 from the government, or did you get the payment book.  If you didn't get 72,000, you should be VOTING against Romney.   Plain and Simple.


Obamanomics is going to be the death of the middle class.  His Marxist policies are right out of Das Capital, including his extreme far left wing campiagn slogan, "Forward"... 


America must decide if we want Socialism/Communism or Free Market Capitalism.  One has made us the envy of the world, the other has eliminated the middle class and made everyone POOR, and then collapsed.  CHOOSE WISELY!

Oct 12, 2012 7:57PM
We'll whats the direction of causality, increase in employment increases consumer sentiment, or increase in consumer sentiment increases employment?
Oct 12, 2012 3:00PM
Traders don't believe a recovery is underway ... honest investors do.
Oct 12, 2012 2:30PM

The economy has turned around.Some people just arn`t smart enough to know it.With 31 straight

months of job growth if you don`t have a job,blame yourself.

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