Heading into the holiday shopping season, Americans are feeling more confident about their personal finances than at any time in the last seven years. The Thomson Reuters/University of Michigan consumer sentiment index rose from 86.9 in October to 88.8 this month, the highest since July 2007 and about 20 percent higher than this time last year.
Despite stagnant wages, economists say stronger employment growth, falling gasoline prices and stock prices at postrecession highs are cheering up consumers just before the start of holiday shopping. The confidence lift bodes well for economic growth in the final quarter of 2014, since consumer spending accounts for about 70 percent of economic activity in the U.S.
Gasoline prices play a significant role in consumer sentiment, even though consumers spend just 3 percent of their disposable income on gas.
“Falling pump prices and elevated levels of consumer mood are likely to make fourth-quarter real consumer spending growth relatively robust,” said Chris Christopher, director of U.S. consumer economics at IHS Global Insight, in an email. Christopher forecasts that retail sales will increase 4.2 percent from last year, which would be a three-year high.
“The fourth quarter is looking significantly more cheerful for consumers and retailers alike,” he said.