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Consumer confidence rises strongly

Consumer confidence surged in December as declining gasoline prices and improving job opportunities buoyed spirits, boding well for spending in the new year.
/ Source: The Associated Press

Consumer confidence has nearly recovered from the beating it took from Hurricane Katrina and other severe storms, boding well for spending in 2006.

The Conference Board said Wednesday that declining gasoline prices and improving job opportunities boosted its Consumer Confidence Index to 103.6 in December from 98.3 in November. That was better than the 103.0 reading analysts had expected.

The index plummeted after Hurricane Katrina on Aug. 29 devastated Gulf Coast states and disrupted fuel and trade for much of the nation, but now is approaching the 105.5 reading preceding the storm.

The report is closely watched because consumer spending drives about two-thirds of the U.S. economy, and gains in sentiment tend to precede increases in spending.

Gary R. Thayer, chief economist for A.G. Edwards & Sons Inc. in St. Louis, Mo., said it was “encouraging that confidence has bounced back after the hurricanes, and it suggests the economy has some good momentum going into the new year.”

Still, he expects overall economic growth to slow from about 3.5 percent this year to 3.2 percent in 2006 and 3 percent in 2007. Higher interest rates are likely to dampen consumer borrowing and weaken the housing market, discouraging some consumers from borrowing against their homes to fund spending, he said.

“But we’re looking at a moderation, not a major slowdown,” Thayer said.

Consumer caution could be seen in holiday sales figures, which most retailers expect to show a modest gain from last year.

The International Council of Shopping Centers-UBS survey of about 70 retailers indicated that sales climbed 3.9 percent for the week ended Saturday from the year-earlier period. That compared with a 4.3 percent year-over-year rise for the same week in the 2004 holiday season. The tallies are based on sales at stores opened at least a year.

Higher fuel prices also remain a concern. The Energy Information Administration reported that the national average retail price of regular gasoline fell 1.4 cents to $2.197 a gallon in the week ended Monday; but that still leaves gasoline prices more than 40 cents higher than a year ago. And crude oil prices rose after an Iranian newspaper reported Wednesday that Iran’s oil minister, Kazem Vaziri Hamaneh, suggested that the Organization of Petroleum Exporting Countries should consider curbing production by 1 million barrels a day when it meets Jan. 31.

The Conference Board index is derived from responses received through Dec. 20 to a survey mailed to 5,000 households in a consumer research panel.

Although the overall index has risen strongly in the past two months, the survey indicates that consumers are more confident of current economic conditions than they are of conditions in the future.

The index measuring consumers’ assessment of current-day conditions improved to 121.5 in December from 113.2 in November, while the index measuring consumers’ assessment of conditions in the next six months advanced to 91.6 in December from 88.4 the month before.

The difference largely reflected perceptions of employment.

In their appraisal of current-day conditions, 23.3 percent viewed jobs as “plentiful” in December, up from 21.1 percent in November. But looking ahead, just 14.3 percent of those surveyed in December said they expected more jobs to be available, up from 14.1 percent in November.

As to income, 20.6 percent of those surveyed in December said they expected an increase in the future, down from 21.3 percent in November. But just 8.6 percent expected a decrease, down from 9.8 percent the month before.