Americans’ optimism in the economy rebounded in March, sending a widely followed barometer of consumer sentiment to a near four-year high, a private research group said Tuesday.
The Conference Board said that its consumer index shot up 4.5 points to 107.2, the highest level since May 2002, when the reading was 110.3. Analysts had expected a reading of 102.
The latest measure was up from a revised 102.7 in February, which was down 4.1 points from January and broke a three-month rebound from last year’s Gulf hurricanes.
“The improvement in consumers’ assessment of present-day conditions is yet another sign that the economy gained steam in early 2006,” Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement. “Consumer expectations, while improved, remain subdued and still suggest a cooling in activity in the latter half of this year.”
The component of the consumer confidence index that assesses views of current economic conditions rose to 133.3 from 130.3. Another component, which measures consumers’ outlook over the next six months, improved to 89.9 from 84.2 in February.
The Conference Board index is derived from responses received through March 21 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.
Despite the improvement in consumer confidence, a modest stock market rally evaporated after the Federal Reserve raised a key interest rate by a quarter percentage point on Tuesday afternoon and left the door open for further rate hikes. The new level of 4.75 percent in the federal funds rate is the highest in five years and will likely lead to higher consumer borrowing costs.
The upbeat report on consumer confidence is an encouraging sign for retailers, whose sales of spring fashions have been uneven amid cool temperatures. Economists closely track consumer confidence because consumer spending accounts for two thirds of all U.S. economic activity.
“It is encouraging that consumers are taking the negative things that are happening recently,” said Gary Thayer, chief economist at A.G. Edward & Sons Inc. “Possibly the employment situation is outweighing other concerns.”
Shoppers face conflicting reports about the economy. Job growth has been encouraging, and a rising stock market has helped boost confidence among higher-income consumers. But consumers also face higher energy costs than a year ago.
A government report last week also offered fresh evidence that the once-booming housing market is cooling. The Commerce Department reported that sales of new homes plunged by the largest amount in nearly nine years in February and the median price fell for the fourth month in a row. Higher interest rates could further slow down the housing market, but whether there will be a dramatic downturn remains to be seen.
Consumer spending has been buoyed by home equity lending, but as that trend has slowed, job growth has become more essential to fuel spending, Thayer said.
“If the job market remains good, I think consumer spending will be healthy,” he said. Nonetheless, Thayer believes that a sharp downturn in the housing market could sour confidence.
The report from the Conference Board said that consumers’ overall assessment of current conditions remains favorable, but their views on labor market conditions was mixed. Consumers saying jobs are “plentiful” increased to 28.4 percent from 27.4 percent, while those claiming jobs are “hard to get” moved up to 20.7 percent from 20.2 percent.
Consumers’ outlook for the next six months improved moderately in March. Consumers expecting business conditions to worsen decreased to 9.9 percent from 10.9 percent, while consumers expecting business conditions to improve increased to 18 percent from 16.2 percent.
The outlook for the labor market was also more upbeat. Those expecting fewer jobs to become available in the coming months decreased to 16.6 percent from 19.9 percent in February, while those expecting more jobs edged up to 13.9 percent from 13.4 percent.