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After crippling economic turmoil over the past few years, many U.S. households worked hard to tighten budgets, slash excessive spending, and live within their means.
But there are signs that consumers are starting to open their wallets again, and U.S. consumer spending – which makes up 70% of the economy – could help sustain the cautious economic recovery.
U.S. consumer confidence in February hit its highest level in three years, bolstered by economic optimism and salary increases, spurring hope that 2011 could be a year of increased household spending.
The Confidence Board, a private research group, said its consumer confidence index climbed to 70.4 this month from 64.8 in January, beating expectations of 66.0 from economists in a Dow Jones Newswires survey. The present-situation index, which measures consumers' sentiment of current economic conditions, rose to 33.4 from 31.1 for its fifth consecutive increase.
"The consumer believes that growth is picking up pace," Jonathan Basile, senior economist at Credit Suisse Group AG (NYSE ADR: CS), told Bloomberg News. "The ducks are in a row for stronger consumer spending this year."
More Americans also felt optimistic about seeing increases in their income over the next six months, which improves the likelihood of household spending picking up enough to give retailers a needed boost.
"[The index] suggests that the recent sustained gains in consumer spending have been underpinned by a recovery in confidence towards the economic rebound and outlook," Millan Mulraine, a TD Securities economist, wrote in a research note. "However, with the labor market recovery continuing to be quite weak, and rising gasoline prices likely to become a significant source of drag on households' budgets, the improvements in confidence is likely to struggle to gain traction in the coming months."
Oil prices have also surged as high as $94.61 this week amid Middle East political unrest, and many economists and consumers are expecting the nation's average gasoline price per gallon to hit around $4.00 this summer.
And there are some who think these economic threats will make 2011 a dim economic year, despite these signs of optimism, and are keeping their household spending to a minimum. A consumer confidence study by Bloomberg reported 29% of respondents expect the economy to worsen this year, up from 23% in January.
"Overall, it is encouraging that consumers are becoming more upbeat," Paul Dales, senior U.S. economist with Capital Economics, wrote in a research note. "But we remain concerned that later this year the poor state of households' balance sheets will undermine the recent acceleration in economic growth."
This brings us to next week's Money Morning "Question of the Week:" Is your household spending more this year? Are there things like clothes, vacations or food that you plan to spend more on than in years' past? Or are you still worried about the economy and your income, and clamping down on your spending habits? Do you see signs of consumer optimism and increased spending in your city?
Send your answers to firstname.lastname@example.org. We want to hear from you!
We reserve the right to edit responses for length, grammar and clarity.
Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]
News and Related Story Links:
- Bloomberg News:
U.S. Consumer Confidence Increases to Three-Year High
- The Wall Street Journal:
Consumer Confidence Rises
U.S. Stocks Trim Losses After Consumer Confidence Tops Forecasts
Consumer confidence jumps in February
- Money Morning News Archive:
Question of the Week Feature