Consumer Confidence Rose to a Five-Month High in November

Consumer confidence rose in November
Consumer confidence rose in November

Consumer are gaining more confidence: The Conference Board index of consumer sentiment unexpectedly jumped 4.2 points to 54.1 in November -- its highest level since June -- as Americans became slightly more optimistic about both the U.S. economy and the job market. A Bloomberg survey had expected the measure to rise to 52 from a revised 49.9 in October. It was at 58.6 in September, 53.5 in August, and 50.4 in July. It hit a record low of 25.3 in April 2009.

Lynn Franco, director of the Conference Board's Consumer Research Center, said confidence is paralleling the economy and showing a gradual improvement.

"Consumer confidence is now at its highest level in five months, a welcome sign as we enter the holiday season. Consumers' assessment of the current state of the economy and job market, while only slightly better than last month, suggests the economy is still expanding, albeit slowly," Franco said in a statement. "Expectations, the main driver of this month's increase in confidence, are now at the highest level since May. Hopefully, the improvement in consumers' mood will continue in the months ahead."

The Future Looks Better Than Today

Most of the index's components recorded an improvement in November. Regarding the economy's six-month outlook, those expecting better business conditions over the next six months increased to 16.7% in November from 15.8% in October, while those expecting business conditions to worsen decreased to 12.1% from 14.4%.

Those claiming current conditions are "good" edged lower to 8.1% in November from 8.3% in October, while those claiming business conditions are "bad" increased to 43.6% from 42.3%.

Regarding future job prospects, the results were slightly better than in October. Those anticipating fewer jobs in the months ahead declined to 18.8% in November from 22.3% in October, while those anticipating more jobs rose to 15.5% from 14.5%. Those saying jobs are "plentiful" increased to 4% in November from 3.5%, while those saying jobs are "hard to get" also edged up to 46.5% from 46.3%. The proportion of consumers expecting an increase in their incomes rose to 10.6% in November from 9.7% in October.

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Economists monitor the Consumer Confidence Index because rises in it are directly correlated with increases in consumer spending, which in the broadest sense accounts for about 65% to 70% of U.S. GDP. So, a rising trend in confidence most likely means good things are ahead for corporate revenue and earnings.

November's report represents another modestly encouraging data point for the U.S. economy. Americans sense that layoffs are subsiding, that the U.S. economy is growing and that many companies, from an earnings standpoint, are in decent shape.

This also suggests a modest increase in holiday spending in 2010. If U.S. job growth continues to increase in the quarters ahead, all other factors being equal, consumer confidence should keep rising. And that should trigger more consumer spending in support of U.S. GDP growth in 2011.