Consumer confidence rose in December to the highest in four months, a University of Michigan survey showed, signaling that Americans have enough faith in the economy to keep spending.
The university's preliminary sentiment index rose to 87 from 84.2 in November after reaching a nine-year low in October, with consumers heartened in part by discounts at the start of the holiday shopping season. Lower costs for gasoline, computers and cars helped push wholesale prices down 0.4 percent in November, the most in six months, the Labor Department said.
"It's very encouraging to see consumers in a more upbeat mood," said former Federal Reserve Governor Lyle Gramley, now a senior economic adviser with Schwab Capital Markets LP. "If you take that in context of the strong retail sales numbers for November, it indicates that the Christmas season is going to be better for retailers than anyone had expected."
Stronger-than-expected sales in November lost steam last week, leaving some retailers and forecasters without clear signals about the holiday season. While Best Buy Co and Circuit City Stores Inc. reported higher sales of CDs and digital video discs, largest retailer Wal-Mart Stores Inc said its early December sales were at the low end of forecasts.
"It's still an open issue," said Bank of Tokyo-Mitsubishi economist Mike Niemira, who has projected a 2.5 percent increase in holiday same-store sales and says sales may rise as little as 1.5 percent for November and December if they kept at last week's pace. "We're still going to be biting nails to the last moment."
The decline in the Labor Department's producer price index followed a 1.1 percent rise in October. Not including food and energy, prices declined 0.3 percent last month after increasing 0.5 percent. Producer prices were 0.9 percent higher in November than the same month last year, while costs of raw materials have increased 14.7 percent.
The Federal Reserve met this week and held its benchmark interest rate target at a 41-year low. Minutes of a Nov. 6 policy meeting released yesterday show the central bankers discussed the possibility of deflation, or a general lowering of prices that can destabilize the economy, before they cut the target rate by a half-point to 1.25 percent.
One consequence of Fed's policy has been to free up cash for people who refinanced homes at lower mortgage rates.
"For the consumer, what's not to like?" asked James Paulsen, chief investment officer for Wells Capital Management in Minneapolis, who manages US$110 billion. "They have rising real wages, they go to the store and everything's on sale, their refi broker just saved them US$200 a month and the Fed just lowered rates again. If you're part of the 94 percent of the population that's employed, you're looking pretty good."
The current conditions index, which reflects Americans' perception of their financial situation and whether it's a good time to spend on big-ticket items, rose to 95.9 from 93.1 in November. The expectations index, based on optimism about the next one to five years, increased to 81.2 from 78.5.
"It's important that both the current conditions and expectations are up," said Richard Berner, chief US economist at Morgan Stanley. "It's more evidence that we are seeing signs of stabilization after the downdraft that we had in late summer and early fall."
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