Consumers feeling better, spending more

A consumer confidence index surprised analysts by climbing to its highest level in four years this month, and consumer spending is up, according to a pair of reports from Bloomberg News last week. Continued consumer optimism should be positive for domestic beef demand, as shoppers frequently view beef as a luxury item relative to competing meats.

According to Bloomberg, the Thomson Reuters/University of Michigan preliminary consumer sentiment index for May climbed to 77.8, up from 76.4 a month earlier. The index beat expectations, as a survey of 68 economists indicated the index would drop to 76 based on an average of their projections. The index now has advanced for the ninth straight month, the longest stretch of consecutive gains since the monthly survey began in 1978.

In a separate report, Bloomberg notes that while average hourly pay for American workers has declined slightly over the 12 months through March, total wages and salaries increased by 2.2 percent. More people are working and are working longer hours, resulting in the bump in incomes.

Quoted in the article, RBS Securities Inc. economist Omair Sharif predicts consumer spending will rise 2.5 percent this year, the most since a 2.9 percent increase in 2006. A Bloomberg survey of 75 economists in early April showed a median projected growth rate of 2.1 percent for 2012 consumer spending.

Over the five years prior to the recession that began in 2007, year-to-year increases in consumer spending averaged 2.9 percent, according to Commerce Department data cited in the article.

Analysts suggest several possible factors in the rise in consumer confidence. In addition to small gains in employment and wages, a slowing of layoffs could allow employed workers to feel more confident of future employment. Also, gasoline prices have dropped by about 21 cents per gallon since peaking earlier this spring, potentially freeing consumer dollars for spending on other things.

Read the Bloomberg reports on consumer spending and consumer sentiment.

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