U.S. Consumer Sentiment Rises as Economy Makes Gains

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Mark Lennihan/AP
By Ryan Vlastelica

NEW YORK -- U.S. consumer sentiment rose to its strongest in five months in December as Americans' outlook on the economy and job prospects improved, a survey released Monday showed.

The final reading on the Thomson Reuters/University of Michigan's overall index of consumer sentiment jumped to 82.5 for December, up from the 75.1 posted in November but unchanged from the preliminary reading released earlier this month.

This was the highest reading for the index since July, though it was slightly under expectations for a reading of 83.

"Most of the gain was due to more favorable buying plans due to renewed discounting as well as more favorable short-term prospects for the economy," survey director Richard Curtin wrote in a statement.

"Personal finances, the most critical factor that shapes consumer spending, %VIRTUAL-article-sponsoredlinks%did improve in late December, although largely due to rising incomes and wealth among those in the top third."

The survey's barometer of current economic conditions jumped to 98.6 in December, up from both the preliminary read of 97.9 as well as the November reading of 88. Analysts were looking for a reading of 98.1.

The survey's gauge of consumer expectations rose from 66.8 in November to 72.1, though this was below the 75.0 forecast as well as the initial read of 72.7.

The current conditions index was at its highest since July, while the consumer expectations index was at its highest since August.

The one-year inflation expectation was 3 percent, above the 2.9 percent November figure, while the survey's five-to-10-year inflation outlook fell to 2.7 percent from 2.9 percent last month.

U.S. Consumer Sentiment Rises as Economy Makes Gains
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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