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U.S. Consumer Confidence Hits Record due to Lower Gas Prices
Dec 28, 2005
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According to a survey from the University of Michigan (U-M), U.S. consumer confidence improved substantially in December, posting the fourth largest monthly gain in 25 years.

"Declines in gas prices were responsible for the substantial gain, which nearly restored confidence to the levels recorded prior to the spike in gas prices last August," Richard Curtin, the director of the U-M’s Surveys of Consumers, said. "Consumers judged their current finances much more favorably due to declines in gas prices, and were more likely to anticipate additional financial gains during the year ahead." The one survey area that posted losses was consumers’ views of home buying conditions, which fell to the lowest level in 15 years.

The Index of Consumer Sentiment was 91.5 in the December 2006 survey, up from 81.6 in November and the recent low of 74.2 in October. Despite the recent gains, the sentiment Index remained well below last December’s 97.1. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, increased to 80.2 in December 2005, up from 69.6 in November and 63.2 in October, but remained below the 90.9 recorded in the December 2004 survey. The Current Economic Conditions Index was 109.1 in December, up from 100.2 in November, and increased above December 2004’s reading of 106.7.

U-M said the rise and fall of gas prices during 2005 had an enormous impact on consumers’ assessments of their financial situation, and variations in energy prices will continue to shape consumer confidence during 2006. A permanent increase in gas prices would shift vehicle-buying preferences toward more fuel efficient models.

"Compared with U.S. $3 gas, consumers were relieved that gas prices are now closer to $2. Nonetheless, consumers anticipate that gas prices will remain at relatively high levels for the foreseeable future," Curtin said.

The December survey also found the outlook for the U.S. economy was judged more favorably, although most consumers expected the pace of growth to slow during 2006. "The growth slowdown anticipated by consumers is very mild, but just enough to result in smaller job gains and a somewhat higher unemployment rate during 2006," said Curtin. U-M said consumers expected interest rates to continue to increase throughout the year.

Although consumers reported hearing more favorable news of recent changes in the economy, the survey found a significant increase in news of job losses. Consumers reported hearing more news of job losses in the December survey, rising to the highest level in nearly 2 years. While most consumers expect little change in the national unemployment rate during the year ahead, on the margin nearly three times as many consumers expected increases rather than declines in the December survey.

U-M said a decline in home buying attitudes was due to widespread perceptions of high home prices and rising mortgage rates. On balance, mortgage rates were judged less attractive than anytime during the last 5 years.

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