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The Honolulu Advertiser
Posted on: Thursday, November 23, 2006

Consumer faith at 15-month high

By Shobhana Chandra
Bloomberg News

U.S. consumers headed into the holiday shopping season with their confidence near a 15-month high in November after gasoline prices and the unemployment rate dropped.

The University of Michigan's final index of consumer sentiment, released yesterday, registered 92.1 in November. The measure, while slightly below expectations and a decline from 93.6 the prior month, still exceeded the 88.1 average since monthly data were first compiled in 1978.

Consumers, whose spending accounts for more than two-thirds of gross domestic product, may help the economy strengthen after it grew last quarter at the weakest pace since 2003.

"Sentiment is holding up and spending likely will as well in the key holiday season," said Doug Porter, deputy chief economist at BMO Capital Markets in Toronto. "Sentiment has been largely driven by the pullback in gasoline prices."

For the first time in more than a year, more consumers this month said the economy had improved rather than worsened, the report said. The final Michigan consumer confidence report for the month reflects about 500 responses, compared with the roughly 300 households surveyed for the preliminary survey.

In a separate report, the Labor Department said yesterday that initial jobless claims rose by 12,000 to 321,000 in the week that ended Nov. 18. The number remains low enough to suggest little weakening in the labor market.

PRELIMINARY READING

The preliminary reading for this month, published on Nov. 9, showed a decline to 92.3 from the October index, which was the highest since July 2005.

The expectations index fell to 83.2 from 84.8 in October. The index was still higher than the average reading of 80.4 over the past three decades.

"Consumer resilience is based on their more positive long-term expectations for the economy," said Richard Curtin, director of the University of Michigan's consumer confidence survey, in an interview. "So when you see these shocks, like rising gas prices, consumers get over it very quickly."

A gauge of current conditions, which reflects Americans' perceptions of their financial situation and whether it is a good time to buy big-ticket items such as cars, fell to 106 from 107.3.

GASOLINE DROPS

The average price for a gallon of regular gasoline was $2.23 on Nov. 20, according to the American Automobile Association. The price has fallen 24 percent in the past three months.

The unemployment rate fell to 4.4 percent last month, the lowest since May 2001. Average weekly wages adjusted for inflation rose 3.2 percent in the year to October, the biggest gain since February 1998, the Labor Department reported last week.

Job growth, cheaper gasoline, and higher stock prices are providing support for consumer spending, which accounts for more than two-thirds of the economy, and offsetting some of the decline in housing, economists said. Fed policymakers have forecast economic growth will maintain a "moderate" pace.