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Consumer sentiment highest since 2000

U.S. consumer sentiment jumped in early January to its highest level in more than three years as stock indexes hit nearly 2-year highs and job-seekers felt more confident a strengthening economy would help them find work.
/ Source: Reuters

U.S. consumer sentiment enjoyed its biggest one-month jump in more than 11 years in early January, signaling that the economy was likely at a turning point that would lead to better hiring.

The University of Michigan’s preliminary reading of consumer sentiment rose to 103.2, the highest since November 2000, before the recession hit three years ago and the economy suffered through a sluggish rebound.

January’s reading, up more than 10 points from December’s 92.6 level, was the biggest one-month increase since late 1992 and easily surpassed economists’ forecasts for a rise to 94.0.

“It’s a sign, if anything, that perhaps the labor market improved dramatically in the first couple of weeks of January versus December,” said Ian Morris, chief economist at HSBC Securities USA in New York.

The confidence data helped ease worries that the labor market’s slow recovery might undermine consumer spending, which makes up two-thirds of economic activity in the United States.

Consumers’ hearty spending over the past few years, helped by tax cuts and low interest rates, has helped keep the economy from suffering a sharper downturn.

Economists said a variety of factors likely boosted confidence: the holidays passing without any attacks, the rise in stock indexes to nearly two-year highs, coming tax refunds and an end to big layoffs.

While companies only added 1,000 workers to payrolls in December, disappointing many expectations for a bigger gain, most economists expect the economy’s healthy pace to lead to more robust hiring in coming months. Weekly claims for jobless benefits have dropped steadily in recent weeks.

Stocks, Treasuries and the dollar all looked past the consumer sentiment figures. The Dow Jones industrial average edged up 0.2 percent, boosted partly by solid earnings from General Electric.

The breakdown of the sentiment index showed expectations for the economy’s six-month outlook jumping by nearly 10 points to 99.5, up from 89.8 the prior month. That big rise in part reflects a climb in stock indexes to nearly two-year highs.

Consumers’ assessment of current economic conditions also improved sharply, to 108.9 from 97.0 the prior month. Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the improvement in the current conditions index “is entirely consistent with the drop in jobless claims.”

The preliminary University of Michigan survey is based on responses from 300 households around the country each month, and the survey’s results are updated at the end of the month with an additional 200 responses.