RetailSails

Confidence continued to improve in January due to positive news about potential job gains, but the majority of consumers remain deeply skeptical about the prospective strength of the economy.

The Thomson Reuters/University of Michigan Index of Consumer Sentiment rose to 75.0 in January, up 7.3% from December and the highest since May, while sitting 1.1% higher than a year ago. The Current Conditions Index increased to 84.2 from 79.6 from the prior month, and sits 2.9% higher than last year. The Expectations Index rose to 69.1 from 63.6 in December, but sits 0.3% lower than last January.

Record numbers of consumers spontaneously reported hearing about recent employment gains, tying the 1983 record. When asked about prospective changes in unemployment, consumers were not as optimistic. Half expected an unchanged rate of unemployment, and the other half were equally divided between expecting increases and expecting declines. These expectations reflect a realism that can be met by modest future job gains. Personal financial prospects remained troublesome for most consumers. More households reported recent income declines than increases, for the 40th consecutive month. Just one-in-four households anticipated financial gains in the year ahead, but only half as many expected their inflation-adjusted income to increase during 2012.

Surveys of Consumers chief economist, Richard Curtin, said “Although the current level of confidence has nearly regained its highest level since the recession, this is the third consecutive year that confidence has mounted a comparable rally. All prior rallies failed when consumers concluded that the improvement they had anticipated had failed to materialize. The recent gains in confidence are now critically dependent on continued job gains. As long as modest employment gains are forthcoming, the data suggest real consumer spending will post a 2.1% gain in 2012. There is no symmetry between the rate of job gains and spending: lower job gains will have a disproportionate negative impact on spending.”