Economy Watch: Consumers Feel Better

By Dees Stribling, Contributing Editor

Consumers continue to feel more upbeat about the economy than before, according to the latest Thomson Reuters/University of Michigan Survey of Consumers, published on Friday. The consumer sentiment index increased to 75.3 at the end of February, an uptick from 75 at the end of January, but also below last February’s 77.5. Still, February 2012 marked the sixth consecutive month that the sentiment index increased from its August 2011 low of 55.8, chalking up a cumulative gain of 35 percent since then—so it looks like the good news about the economy is sinking in, despite such niggling woes as the rising price of gas.

The university’s current conditions index was down in February to 83 from January’s reading of 84.2 points, reflecting the fact that incomes still haven’t risen that much. The expectations index, on the other hand, rose to 70.3 in February, up from 69.1 in January. Despite the unwelcome upward movement in the cost of gasoline, consumers are still expecting only 3.3 percent inflation for the next 12 months, according to the University of Michigan.

“Consumers have shrugged off concerns about rising gas prices, the European crisis, and election year politics, preferring to focus on the favorable impact of job growth,” University of Michigan economist Richard Curtin, director of the survey, noted in a statement. “A potential threat is that consumers expect too much too soon. While election year politics typically raise economic prospects, it may also increase the negative consequences if the promised gains fail to materialize.”

Home sales dip in January

The U.S. Census Bureau reported on Friday that new home sales were down in January 2012 by 0.9 percent compared with December, to an annualized rate of 321,000 units, but still up 3.5 percent compared with last January. The monthly decline followed four months in a row during which new home sales rose an aggregate of about 10 percent.

The government also revised new home sales upward for the fourth quarter of 2011. December, as it happens, had the highest monthly sales rate for the entire year, with units selling at an annualized 324,000 units. The relative strength toward the end of the year wasn’t enough to pull 2011 out of the cellar in terms of new home sales, however. Total new home sales in 2011 were 304,000 units—the lowest total on record, and the records go back to the days of the Kennedy administration, when the U.S. population was considerably lower than now.

G20 pesters Germans to contribute more to bailout fund

Over the weekend finance ministers from the G20—the group of the world’s largest economies—called on one of their number, namely Germany, to kick in more to the euro zone’s bailout fund, the European Stability Mechanism. Currently the size of the bailout fund, persistently referred to as a “firewall” by the ministers who were meeting in Mexico City, is about 500 billion euros ($672.5 billion). With new infusion of German cash, that could go up to 750 billion euros. An additional commitment by the International Monetary Fund could then kick the total past 1 trillion euros.

So far, the German’s aren’t interested in pumping up the fund, arguing that it would represent a moral hazard, though perhaps the more formidable hazard is the strength of popular opinion in Germany against bailing out Mediterranean counties. At the moment, the German government seems to be focusing on making sure that the deal cut last week with Greece actually passes the Bundestag on Monday. The Dutch and Finnish parliaments will vote on the deal this week, too.

Wall Street spent most of the day on Friday in positive territory, but ended the trading session mixed. The Dow Jones Industrial Average lost a small-as-can-be 1.74 points, or 0.01 percent. The S&P 500 was up 0.17 percent and the Nasdaq gained 0.23 percent.