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Consumer Confidence Surges

Consumer confidence in the United States surged in December as declining gasoline prices and improving job opportunities buoyed spirits, boding well for spending in the new year.

The Conference Board said Wednesday that its Consumer Confidence Index advanced to 103.6 this month after recovering to 98.3 in November. That was better than the 103.0 reading analysts had expected for December.

December's rise put the index at its highest level since Hurricane Katrina struck on Aug. 29, devastating Gulf Coast states and disrupting fuel and trade for much of the nation. Last August, before the storm, the index registered 105.5.

Although most analysts expect the U.S. economy to continue growing next year, few expect it to be as strong as in 2005. That's because consumer spending faces some headwinds.

For example, 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. Meanwhile, home heating fuel costs remain elevated and home price appreciation is slowing, which likely will discourage some consumers from boosting their spending by borrowing against their homes.

Lynn Franco, director of the Conference Board's Consumer Research Center, said in a statement accompanying the report that "consumer confidence continues to bounce back" from the beating it took after the hurricane.

"The resiliency of the economy,, recent declines in prices at the pump, and job growth have consumers feeling more confident at year-end than they felt at the start of 2005," Franco said. "Consumers are confident that the economy will continue to expand in 2006."

The consumer confidence index stood at 102.7 in December 2004.

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.

Peter Morici, a professor of business at the University of Maryland in College Park, said the report suggests that consumers are feeling better.

"They're thinking, we went through the jump in energy prices and the hurricane and we came out without noticeable damages," he said. "Now it's the holidays, and gas prices are down, so consumers are feeling mellow and content, and cautiously confident about the future."

Morici added that higher fuel prices and the end of the housing boom are likely to slow consumer spending, and the economy, somewhat in 2006, adding that "everybody expects next year will not be quite the year this was, but they're not expecting bad things to happen to them."

Most economists predict that the economy will slow from the sizzling 4.1 percent annual growth rate the government reported for this year's third quarter. Lehman Brothers, for example, forecast economic growth of 3.7 percent for all of 2005, followed by expansion of 3.5 percent in 2006 and 3.0 percent in 2007.

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.

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