Americans grew more optimistic about the job market in January, sending a widely followed measure of consumer confidence to its highest level in three and a half years. The report Tuesday from the Conference Board showed, however, that consumers are still uneasy about the future.
The private research group said its consumer confidence index rose to 106.3, the highest level since June 2002, when the reading was also 106.3. The latest measure was up from a revised 103.8 in December, and continued a rebound that began in November following the Gulf Coast hurricanes. Analysts had expected a reading of 105.0 in January.
A separate report from the Labor Department on employee compensation said wages and benefits paid to civilian workers rose 3.1 percent last year, the smallest amount in nine years. The department said the slowdown reflected a big drop in benefit costs — items such as health insurance and pensions — which rose by 4.5 percent last year after jumping by 6.9 percent in 2004.
In a statement, Lynn Franco, director of The Conference Board Consumer Research Center, said the increase in consumer confidence “was driven solely by consumers’ assessment of current economic conditions, especially their more positive view of the job market.” But she added that while consumers rate current conditions more favorably, the improvement has not translated into greater optimism about the outlook for the economy six months from now.
The component of the consumer confidence index that assesses consumers’ views of current economic conditions rose to 128.4 from 120.7. Specifically, the report showed that more consumers in January than in December believe that jobs are available. But another component that measures consumers’ outlook over the next six months slipped to 91.5 from 92.6 in December.
Economists closely track consumer confidence because consumer spending accounts for two-thirds of all U.S. economic activity. And the latest reading comes at an uncertain time for the U.S. economy. While gasoline prices have come down, they are still higher than a year ago. The job market recovery remains uneven, and more interest rate hikes could be in the offing.
“It looks like consumers are feeling at least better about the current situation. But I still think there is a lot of uncertainty about the future,” said Gary Thayer, chief economist for A.G. Edwards & Sons Inc. in St. Louis. “The geopolitical news is not very comforting,“he added, referring to tensions in the Middle East.
Still, Thayer said the Fed will look at January’s confidence figures as yet another sign that the economy has bounced back from hurricanes Katrina, Rita and Wilma. He expects the Fed to raise interest rates again in March in an effort to combat inflationary pressures.
The Conference Board index is derived from responses received through Jan. 24 to a survey mailed to 5,000 households in a consumer research panel. The figures released Tuesday include responses from at least 2,500 households.