Consumer Confidence Rebounds as Shoppers Adjust to Payroll Tax Hike

Tuesday, 26 Feb 2013 10:17 AM

 

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U.S. consumer confidence picked up much more strongly than expected in February as Americans shrugged off earlier worries over fiscal policy and tax increases, a private sector report showed on Tuesday.

The Conference Board, an industry group, said its index of consumer attitudes accelerated to 69.6, from a downwardly revised 58.4 in January, handily topping economists' expectations for 61. It was the highest level since November.

January was originally reported as 58.6, the lowest level in more than a year.

Consumers last month had been concerned over the impact of Washington's deal on the "fiscal cliff" at the beginning of the year. While the full brunt of tax increases and spending cuts that were scheduled to go into effect was averted, the payroll tax deduction holiday came to an end and weighed on consumer attitudes in January.

"The shock effect caused by the fiscal cliff uncertainty and payroll tax cuts appears to have abated," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.

Still, budget issues remain. Government spending cuts of $85 billion are set to come into effect at the end of the week unless Washington can come to an agreement to postpone what is known as the sequester.

The expectations index climbed to 73.8, from 59.9, while the present situation index gained to 63.3, from 56.2.

Stocks on Wall Street rose to session highs shortly after the data as investors were also taking in a report that showed a jump in new home sales in January, as well as comments from Federal Reserve Chairman Ben Bernanke that strongly defended the central bank's bond-buying stimulus.

"The numbers are all pretty strong. It is a significant rise in confidence and a strong rise in new homes sales — there is not really much to argue in those numbers," said David Sloan, economist at 4Cast Ltd. in New York.

Consumers' view on the labor market was mixed. The "jobs hard to get" index edged up to 37 percent from 36.6 percent the month before, while the "jobs plentiful" index also rose to 10.5 percent from 8.5 percent.

Consumers felt better about price increases with expectations for inflation in the coming 12 months falling to 5.5 percent, from 5.7 percent.

© 2014 Thomson/Reuters. All rights reserved.

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