Americans are feeling more confident about their personal finances than economists had expected, reaching a nearly eight-year-high this month as gasoline prices plummet. The rise in confidence follows government data showing shoppers spent more than expected in November despite reports of lackluster Thanksgiving weekend sales.
The closely watched U.S. consumer sentiment index compiled by Thomson Reuters/University of Michigan ticked up to 93.8 in December from 88.8. Economists had expected 89.5 for December.
"Confidence is clearly being boosted by record-high equity prices, the breakneck pace of job growth and the plunge in gasoline prices," Paul Dales, senior economist for Capital Economics, said.
Dales estimates three out of the five points in the index's rise are due to seasonal effects -- the index is not seasonally adjusted -- but Capital Economics' seasonally adjusted data show sentiment rose two points to a seven-year high.
"Plunging oil prices have been a major driver of consumer sentiment in recent weeks and months, as US crude plummeted below $60 a barrel on Friday for the first time in five years," James Chen, a senior market analyst at CityIndex.com, said. "This should continue to be the case into 2015 as crude oil struggles to find a bottom."
Lower gasoline prices are padding consumers' pockets with more disposable cash. Consumers' ability to buy looks good, Chris Christopher, director of consumer economics at IHS Global Insight, wrote recently. "Even though their wage gains haven’t been that great, their expenses — the overall price level for things — is much lower."
Economists have been tracking consumer sentiment for decades to help predict how much people are able and willing to buy. Businesses depend on the data to make decisions about whether to offer discounts or stock shelves with more merchadise.
The “strong” 0.7 percent month-over-month rise in November’s retail sales was the largest since March and “shows that we were right to dismiss all the reports that holiday sales have been weak,” including reports of weak sales over Thanksgiving weekend, Dales wrote in a note Thursday. “The truth is that the rapid rises in employment mean that this holiday shopping season will be the best in nine years.”