By Quentin Fottrell
American consumers feel better about opening their wallets, according to new data. Whether they’ll actually remove any cash is another story.
The University of Michigan’s consumer sentiment index rose to 75.3 in February from 75 in January, according to a report released Friday — a sharp improvement on recent consumer confidence indexes. In January, the Conference Board’s index of consumer confidence fell to 61.1 from 64.8 the month before. And the Deloitte Consumer Spending Index also continued on a downward trajectory for five straight months, which might explain why people are thinking twice about going shopping.
An improving jobs market and the Dow cracking the 13,000 mark helped push up consumer sentiment to a yearly high, analysts say. But there are other concerns quietly plaguing spending, says Scott MacDonald, head of research at MC Asset Management. He cites stagnant wages and Federal Reserve estimates that show one-in-five mortgages are still underwater, which equates to around $700 billion in negative equity. Worse, consumers are once again relying on their credit cards. “It’s the same old pattern: spend, spend, spend – and borrow,” he says.
It’s may be too soon to say whether Americans believe the worst is over. Households are more positive than last summer, but less so than in the decades before the 2008 recession, says Patrick O’Keefe, director of economic research at J.H. Cohn consultants in Roseland, N.J. “Consumers remain in a recessionary mentality,” MacDonald says. “A consumer sentiment index in the low to mid 70s is still about the level expected in a recession,” says Carl Steidtmann, chief economist at consulting firm Deloitte. “To put that in context, the index did not fall below 80 in the recession of 2001,” he says.
So what needs to happen for Americans to regain their mojo? “For the consumer to be really happy, gas needs to get closer to $3 per gallon and unemployment needs to fall toward 7% from 8.3%,” MacDonald says. Gas prices trump improving employment data, according to independent retail analyst Jeff Green. “Americans are only interested in how the broader economic picture affects them,” he says. “Those who are fortunate enough to have a job are not so concerned about employment statistics, but gas prices affect everybody.”