Economy Watch: Consumers Feeling Pretty Good

By Dees Stribling, Contributing Editor

U.S. consumers were feeling peppy in February, at least if the latest reading of Reuter’s/University of Michigan consumer sentiment index is any indication. Consumer sentiment in March was at 76.2, its highest level since early 2011, and up from 75.3 in February, notes the survey of 500 households on their financial condition and outlook. Thus now is a fairly optimistic moment, and that can lead to further economic growth as optimism drives consumer purchasing decisions.

The University of Michigan’s current conditions index did best of all, rising to 86, which was up three points from February to March. The rise was driven by improvements in the job market and the way that the stock market has been cleaning up lately. Not even unaccountable recent increases in the price of gasoline ate into consumer sentiment very much in March, according to the survey.

Consumer expectations, on the other hand, edged down a bit in March. Possibly people are worried that gas prices won’t prove to be a bubble, but rather keep on rising. In February the expectation index was at a 2.5-year high of 70.3. In March, expectations slipped to 69.8.

Consumers spending more, too

Peppy consumers tend to spend more, and so it was in February, according to the Bureau of Economic Analysis on Friday. Consumer spending, which the BEA calls “personal consumption expenditures,” was up $86 billion, or 0.8 percent in February. That’s a seven-month high, but the not-good news was that personal income was only up $28.2 billion, or 0.2 percent, with disposable personal income—the kind that everyone wants—only rising $18.9 billion (also 0.2 percent).

Take out inflation, which is being whipped along by increases in the price of gas, and consumer spending was up 0.5 percent month-over-month in February. Much of the jump in spending was driven by car sales, which spurred durable goods purchases among consumers to a 1.6 percent increase during the month. Nondurable goods barely budged at all, rising only 0.1 percent during February, while spending on services was up 0.4 percent.

As one might expect when spending is up but income is up not so much, personal saving was down. It totaled $438.7 billion in February, compared with $509.5 billion in January. The personal saving rate—personal saving as a percentage of disposable income—was 3.7 percent in February, compared with 4.3 percent in January.

Chicago PMI edges down, stocks have a terrific quarter

The Chicago Purchasing Managers’ March Chicago Business Barometer retreated a bit after February’s 10-month high, according to ISM Chicago on Friday. Though slowing, the barometer marked its fifth month above 60, and 2.5 years of expansion (above 50). Increases were seen in five of eight business activity indexes, especially in Prices Paid and Inventories, and a lengthening in lead times for Production Material.

Wall Street ended Friday mixed, though all of the exchanges turned in solid gains for the first quarter of 2012. For the day, the Dow Jones Industrial Average managed to gain 66.22 points, or 0.5 percent, while the S&P 500 was up 0.37 percent. The Nasdaq was down 0.12 percent. For the quarter, the Dow gained nearly 1,000 points (994.48 points), or 8.14 percent, while the S&P 500 was up 12 percent and the Nasdaq gained a whopping 18.67 percent.