Consumers in the U.S. gained confidence in November for the first time in three months, raising the odds that an improving job market and increasing wages and stock prices will lift spending.

The Thomson Reuters/University of Michigan preliminary sentiment index rose to 69.3, in line with the median forecast of economists surveyed by Bloomberg News and the highest level since June, from 67.7 in October. The measure averaged 88.9 in the five years to December 2007, when the last recession began.

Retailers from J.C. Penney Co. to Wal-Mart Stores Inc. are still planning on using discounts to entice customers during the holiday season, typically merchants’ biggest sales and hiring period, as unemployment holds near 10 percent. The report also signals the end of political campaigning following the election may help dispel pessimism over the economic outlook.

“It’s a very good sign for spending in the months ahead,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit. “We are seeing a little bit better numbers on the job front,” he said. Additionally, “the uncertainty we had approaching the elections is over and the improvement in the stock market suggests to a lot of Americans that maybe the economy is slowly improving.”

Economists forecast the measure would increase to 69, according to the median of 66 projections in the Bloomberg survey. Estimates ranged from 66 to 75.

Shares Fall

Stocks slumped, sending the Standard & Poor’s 500 Index to its biggest weekly drop in three months, on concern China will try to rein in economic growth and inflation by raising interest rates and slow the global recovery. The S&P 500 fell 1.2 percent to 1,199.21 at the 4 p.m. close in New York.

The S&P 500 rose 3.7 percent in October after an 8.8 percent gain the prior month, the best back-to-back performance in more than a year.

Shares rallied last month as Fed policy makers telegraphed they stood ready to take more action to spur growth, bring the jobless rate down and prevent prices from falling. The central bank last week announced plans to buy an additional $600 billion in Treasury securities through June in a bid to lower borrowing costs.

Today’s sentiment report showed consumers saw inflation picking up over the next 12 months, while maintaining longer- term forecasts.

Households said they expect an inflation rate of 3 percent a year from now, up from the 2.7 percent projected in October. Over the next five years, the measure tracked by the Fed, Americans’ forecast held at 2.8 percent for a second month.

Current Conditions

The increase in confidence this month was paced by a gain in the measure of current conditions, a reflection of Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items like cars. The gauge of expectations for six months from now, which more closely projects the direction of consumer spending, also rose.

J.C. Penney, the third-largest U.S. department-store company, today said third-quarter profit rose 63 percent, helped by sales of its Liz Claiborne clothing. The Plano, Texas-based company said the holiday shopping environment will “remain highly promotional.”

The merchant’s middle-income customers are “probably the most constrained” as the U.S. jobless rate lingers near 26-year highs, Chief Marketing Officer Mike Boylson said in a Nov. 8 interview.

More Jobs

Signs the labor market is improving may be helping to reassure consumers. Employers added 151,000 workers to payrolls in October, boosted the workweek and raised wages, a Labor Department showed last week. The average number of Americans filing claims for jobless benefits over the past four weeks dropped to the lowest level in two years, the agency said this week.

The National Retail Federation has forecast November- December holiday sales will rise by 2.3 percent from a year ago, the most since 2006.

Consumer spending, which accounts for about 70 percent of the economy, will grow at a 2.4 percent annual pace this quarter, according to the median forecast of economists surveyed by Bloomberg this month. That is up from the 2 percent gain projected last month.

Purchases increased at a 2.6 percent rate in the third quarter, the most since the end of 2006, and the economy expanded at a 2 percent annual pace, according to figures from the Commerce Department.

Americans’ discontent with the economy gave Republicans a majority in the House of Representatives and allowed the party to add six seats in the Senate. The end of campaigning may help ease uncertainty about the direction of policy.

“Elections have a way of depressing the way people feel about things,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “We’ve certainly seen a number of episodes where consumer sentiment has fallen leading up to elections and then got a bit of a pop.”

http://www.bloomberg.com/news/2010-11-12/consumer-sentiment-index-in-u-s-increased-to-69-3-in-november.html

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