Confidence Index Posts January Gain
U.S. consumers started the new year in a surprisingly upbeat mood even as inflation ate into their paychecks and gasoline prices climbed, reports showed Tuesday.
Another report indicated that business in the industrialized Midwest expanded again in January as the costs of doing business receded a bit.
The Conference Board, a private research group, said its index of consumer confidence rose to 106.3 in January from 103.8 in December, surpassing Wall Street’s expectations.
Earlier, the government said U.S. employment costs rose 0.8% in the fourth quarter as wage growth picked up and the increase in benefit costs slowed.
The rub? Inflation outpaced the increase in worker paychecks, the Labor Department said in its quarterly employment cost index report.
Economists linked rising consumer confidence squarely to better employment prospects.
“More people are seeing jobs as plentiful and few are seeing jobs as hard to get, and that is probably what has caused the [confidence] number to be a little stronger than expected,” said David Sloan, senior economist at 4CAST Ltd.
Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh, noted that the rise was “in spite of gasoline rebounding 10 to 15 cents in January.”
“This also squares with the jobless claims data,” Hoffman said, referring to initial jobless claims below 300,000 in three of the last four weeks, a trend generally seen as consistent with a strong jobs market.
The Conference Board’s current conditions index, at 128.4, was the highest since August 2001, while the expectations index -- seen by many as a better indicator of future spending -- dipped to 91.5 from 92.6.
“The rebound in expectations since October is still big enough to signal strong first-quarter consumption, but not a sustained boom,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.
Consumers remained upbeat despite a steady erosion in the power of their paychecks.
In the 12 months to December, inflation-adjusted wages were down 0.8%, the fifth straight quarterly drop. That means worker paychecks bought less than a year earlier, mostly because of soaring energy costs.
With inflation taken into account, compensation costs actually shrank 0.3% in the last year, the first calendar-year decline since 1996.
“These results reveal the breadth of the unprecedented gap between the pace of overall economic progress and the returns to working people,” said Jared Bernstein, an economist at the Economic Policy Institute, a Washington think tank.
In a separate report, the National Assn. of Purchasing Management-Chicago said its business barometer eased to 58.5 in January from 60.8 in December.
Economists had forecast the index at 59.8.
A reading above 50 indicates expansion in the sector and the index has been above that level for almost three years.
