Consumer confidence climbed to its highest level since the early days of the recession in February, outpacing many analysts’ expectations.
According to the Conference Board, those saying business conditions were good rose to 12.4 in February from 11.3 in January. Also, those who felt that jobs were “plentiful” nudged up to 4.9 percent from 4.6 percent while those who felt jobs were “hard to get” correspondingly fell to 45.7 from 47.
While many analysts projected that the Conference Board’s monthly survey of consumer sentiment—a figure some believe to be a leading indicator as to the direction of the economy—would rise only modestly from January’s figures, the 5.6 point jolt, from 64.8 in January to 70.4 in February, was a pleasant, if unexpected, surprise for many.
“What this is telling us is that consumers are loosing their pessimism a little bit,” said Ken Goldstein, an economist with the Conference Board, in a CNBC interview Tuesday. “This has been a trend now for a couple of months. Consumers really believe that things are going to get better.”
However, some analysts, like Michael Englund, chief economist at Action Economics, are skeptical of the seemingly steep increases in the Index witnessed in recent months.
“I think what we may be seeing is a shift in the survey process,” said Englund. “If you look at other surveys, such as the Michigan Sentiment Survey, expectations only changed modestly.”
The Conference Board, which until recently had been serviced by TNS, changed survey providers to the Nielsen Company as of November. In a statement, the Board said the November 2010 to January 2011 numbers had been “restated to smooth the transition.”
Still, even correcting for any artificial inflation of the numbers due to the changeover, it’s hard to deny that improving consumer attitudes, both in terms of sentiment and spending patterns, is not a signal that the average American seems more hopeful about the economy.
Thomas Simons, an economist with Jeffries & Company, agrees. Simons cited recent legislation out of Washington for consumers’ improved outlook. “I think the biggest thing is recent tax legislation which has led to an increase in the amount of money in people’s pockets by decreasing tax withholdings and decreasing the social security tax,” Simons says. “Anytime you put more money in consumers’ pockets, they’re going to feel better.”
And while Simons, like Englund, acknowledges there’s an element of the increase that might be artificial given the change in methodology, he says the fundamental upward tilt in the Index over the past year supports an overall thawing of attitudes.
Considering the stagnant state of job growth (unemployment continues to hover around 9 %), the positive uptick in consumer sentiment may all ultimately be smoke and mirrors in terms of divining a substantive recovery, but Obama administration officials and others are no doubt hoping this is a case of perception leading reality. If businesses believe that consumers are willing to spend more and save less, they might be enticed to unleash their animal instincts and expand their operations and, therefore, their payrolls.