Economy Watch: Consumer Sentiment Up Unexpectedly

Consumer spending increased in the month of August; credit for spending is given to most of the prices not going up too high.
Courtesy of Flickr User David Berkowitz

Consumers were feeling a bit better about the economy in August, according to the Thomson Reuters/University of Michigan preliminary index of consumer sentiment, which was released on Friday. Against predictions by economists and the like, the index was up to 79.2 from 74.3 during July.

What’s up? The employment picture is no better than it has been all year, the price of gas has been unexpectedly ballooning in recent weeks, and there’s plenty of uncertainty to go around, including Europe’s gnawing crisis and the prospect of falling off the fiscal cliff here at home–not to mention the standard uncertainty that comes ahead of a presidential election.

On the other hand, stocks have rebounded nicely in recent months to pre-recessionary highs, putting some bounce into retirement accounts and mutual funds, and even the long-suffering housing market seems to be on the road to some kind of recovery. The the moment at least, consumers have decided to accentuate the positive and eliminate the negative.

CPI Up Mostly Because of Gas Prices

Maybe another reason that consumers aren’t quite as grumpy as they otherwise might be is the fact that most prices aren’t going up that much. According to the U.S. Bureau of Labor Statistics on Friday, consumer prices were up 0.6 percent in August, but almost all of that increase was due to gas prices. Take out gas, and the increase was only 0.2 percent; take out food, and the increase was only 0.1 percent.

Still, some categories of consumer goods are going up in price, such as shelter, medical care, personal care, new vehicles, and recreation, which all rose in August. On the other hand, the BLS said, used cars and trucks, apparel, household furnishings and operations, and airline fares all posted declines.

The 12-month change in the CPI for all items was 1.7 percent in August, an increase from the July change of 1.4 percent. The index for all items less food and energy rose 1.9 percent for the 12 months ending August, a slight decline from the 2.1 percent figure in July and its smallest increase since July 2011.

Consumers Buy More, Mostly Because of Gas Prices

Indeed, consumers showed their relative cheerfulness in August by going out and spending. According to the U.S. Census Bureau on Friday, retail sales were up 0.9 percent during the month, more than expected, with a good bit of the increase going for cars.

But the increase isn’t all good news, since the report doesn’t adjust for price, so another large part of the gain was because of increasing gas prices during August. Sales excluding automobiles and gasoline rose only 0.1 percent. Many retailers, including most department stores, apparel retailers and electronics outlets, saw sales decline.

Wall Street continued to trend cheerful on Friday in the wake of QE3. The Dow Jones Industrial Average was up 53.51 points, or 0.4 percent, while the S&P 500 also advanced 0.4 percent and the Nasdaq gained 0.89 percent.