Tis the season to be jolly, and according to recent government data, Americans are in good economic spirits this holiday season. The Conference Board’s consumer confidence index climbed to a nearly 5-year high this month, increasing from 73.1 to 73.7. Factors such as rising home values and falling gas prices led to additional consumer spending, which in turn has encouraged businesses to make greater investments.
The confidence index exceeded the projected reading of 73 forecast by Bloomberg economists and reached its highest level since February 2008. Still, while the index is remarkably above its all-time low of 25.3 in February 2009—during the height of the recession—it is well below 90, the benchmark level considered to signal a healthy economy, last achieved in December 2007.
Analysts hope the upward economic trends will continue to boost economic growth throughout the fourth quarter, although the outcome of the looming fiscal cliff—automatic tax increases and spending cuts scheduled to take effect Jan. 1 without legislative action—will determine the true state of the economy in 2013.
“Right now, households don’t seem to be letting the fiscal threat control their urge to spend,” Naroff Economic Advisors president Joel Naroff told the Washington Post. “The first weekend of holiday sales was great, vehicle sales are holding up and housing is strong.”
A major factor affecting consumer confidence is home prices. According to the Standard & Poor’s/Case-Shiller 20-city index, home prices rose by an additional 3 percent in September after gaining 3.6 percent in the second quarter. The index compares home prices in a given month to the same month a year earlier.
Consumers are also optimistic because gas prices have fallen nationwide. According to AAA, the price of gas has dropped from an average of $4 a gallon in September to about $3.42 a gallon on Nov. 27. As gas prices fall, consumer have more money to spend on goods and services, as seen in the record number of Americans who went shopping during the Thanksgiving holiday weekend. According to the National Retail Federation, shoppers spent an average of $423 during the opening weekend of the holiday shopping season, compared to $398 last year.
Possibly most important to consumer confidence, however, is the improving job market. Employers added 171,000 jobs in October, and the original number of jobs thought created in August and September were adjusted upward. According to the Conference Board’s survey, the number of Americans who say jobs are now “plentiful” rose from 10.4 percent in October to 11.2 percent in November—the highest proportion in four years.
“Hopefully, their optimism is warranted,” Joseph LaVorgna, an economist at Deutsche Bank, told the Post. However, if the fiscal cliff isn’t avoided, they “could be in for a rude awakening.”
