US Consumer Sentiment in May Highest Since 2007
Last week, a Thomson Reuters / University of Michigan survey reported great news for the US economy. According to their final reading, US consumer sentiment has gone up during the month of May, reaching its highest level since October 2007.
The report showed that US consumer sentiment increased from 76.4 in April to 79.3 in May. That marked a significant increase not only compared to last month’s reading, but also even to May’s initial reading of 77.8. The fact that consumer sentiment is at its highest level since October 2007 is also significant because the recession did not officially start until December of that year, meaning that current levels are as high as they were before the recession began.
The reading of consumer sentiment is important because it sheds light onto how consumers are viewing their finances and buying conditions. Given that about 70 percent of all goods and services are purchases by consumers, their sentiments are critical factors in the economy, and economists use consumer sentiment readings as benchmarks when making economic projections.
The report offered several explanations of what influenced the increased sentiments. Gas prices have decreased during the month of May by about 12 cents per gallon. The result is a national average price of $3.71 per gallon, according to the US Department of Energy.
Readings on consumer buying plans have also shown an increase from 126 to 132. Consumers are more confident in buying vehicles and household durables now than previously. Consumers are also becoming more optimistic about the job market with an anticipated increase of 150,000 jobs in May, up from the 115,000 jobs in April.
Household income is also expected to rise in the year ahead, with a 2 percent increase for higher income households and a 0.3 percent increase for lower income households.
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New and Existing Home Sales Increased in April
Recent reports on home sales in the US have indicated that sales of both new and existing homes increased in April. New homes rose by 3.3 percent, while existing homes increased by 3.4 percent.
According to the National Association of Realtors, the annual rate of home resales rose to 4.62 million units. This marked an increase of 3.4 percent, the fastest since May 2010. The median price of existing home sales also increased by 10.1 percent, jumping to a price of $177,400. The National Association of Realtors said that the increase in the sales of existing home and the decrease in foreclosures both contributed to the rise of home prices.
Sales of new single-family homes also increased in April according to the Department of Commerce. Sales rose by 3.3 percent, thus increasing from the annual rate from 332,000-units in March to 343,000-units in April.
Based on the increases in both new and existing single-family homes, economists believe that the housing market is on track for a faster recovery.
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NABE: Job Growth in US by 2013
In its latest study, the National Association for Business Economics surveyed 54 economists throughout the country, who indicated they believe the future looks bright for job growth in the US.
NABE conducted the survey from April 19 to May 2, and results indicate jobs in the country are expected to increase by around 200,000 per month by 2013. Non-farm payroll is expected to average 188,000 per month this year, which is a higher projection than the 170,000 figure suggested in previous recent forecasts.
In addition, the unemployment rate is expected to fall to 8 percent by the fourth quarter of 2012. Economists believed that if it continues to fall at that rate, it will reach 7.5 percent by fourth quarter of next year.
Meanwhile, economists expect that inflation will remain steady and that interest rates will reach a near zero level by next year. Housing prices are also anticipated to rise, but only by a slight increase of 0.5 percent by the end of 2012.
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Rise in the Housing Market Signals Recovery
According to a rise in housing starts for the month of April and a record-high jump in housing affordability during the first quarter of 2012, it appears that the housing market is on its way to recovery.
Reports recently released by the Department of Commerce showed that housing starts in April rose to a seasonally adjusted annual rate of 717,000 units. This marked an increase of about 2.6 percent compared to March, though that month’s housing starts were also adjusted from the initial report of 654,000 units to 699,000 units.
Reports also indicated that the seasonally adjusted reading for April had exceeded the expectations of economists. They were expecting an adjustment of 680,000 units, a significantly lower rate compared to the actual reading. In addition, the current housing starts rate is said to have increased by 29.9 percent compared to its rate the same month last year.
Details of the report noted that single-family homes had increased to 2.3 percent, while multifamily homes had risen to 3.2 percent.
Also contributing to the economic growth in the housing market was the increase in housing affordability, which denotes that more consumers can now afford to buy a home. The National Association of Realtors said that families with a median income of $61,000 can now afford a home that costs around $325,000. Based on those figures, a mortgage payment would only absorb 13. 5 percent of a family’s gross annual income.
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US Consumer Sentiment Highest in Four Years
Consumers are starting to feel more confident when it comes to their spending. According to a recent survey of consumer sentiment conducted by the University of Michigan and Thomson Reuters, consumer sentiment in the US increased in early May. The rise was substantial and unexpected, and levels are now at the highest they have been in four years.
According to the recent reading for consumer sentiment, the overall index increased from 76.4 in April to 77.8 in early May. This exceeded economists’ expectations of a level of only 76.2 and is the highest level of consumer sentiment since January 2008.
Consumer sentiment reports as important as these show the strength of consumer spending. In addition, they also help spur further economic growth because, when new reports indicate a rise in consumer sentiment, consumers become more confident about their spending and, as a result, begin spending more and positively contributing to the economy.
Reports by the University of Michigan and Thomson Reuters also noted that consumers are spending more thanks to the reduction in gasoline prices. In recent weeks, the prices of gasoline have decreased, thus making consumers’ other purchases less stressful. In addition, consumer sentiment is backed up by new job gains and a decrease in the unemployment rate. Consumers are now more capable of buying homes and even have more plans to buy vehicles and durable goods.
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Increased Job Growth and Decreased Unemployment Signal Recovery
A report recently released by the Bureau of Labor Statistics revealed several positive signs that point to a labor market recovery. The number of people with jobs increased in both March and April and there have been continuous drops in unemployment, leaving the bureau suggesting that the labor market is on the right track to recovery.
The labor statistics showed a low ratio of unemployed people to available jobs, meaning that there had been a decrease in the number of unemployed people to vacant jobs. The ratio for the month of March was at 3.4 unemployed people per vacant job, down from the previous month, which was 3.6. The rate is at its lowest level since November 2008.
According to the Bureau, the decrease in the rating suggests that more people are now quitting their jobs voluntarily than being laid off. One example of this is people who are voluntarily leaving their current jobs for other jobs. There is also an increasing number of job openings, which is creating more opportunities for unemployed and even currently employed people. In March alone, the number of job openings rose by 172,000.
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Number of Government Jobs Increases over Last Decade
According to a recent report released by the US Bureau of Labor Statistics, the number of US government jobs has increased over the past 10 years, and quite significantly so in 37 of the 50 states.
Ten years ago in 2002, there were 21.5 million government jobs in the US. Since then, the number of government jobs has increased by 2.8 percent and 613,800 jobs have 
been added. As of March 2012, the number of people employed by the government was over 22.17 million.
The US Bureau of Labor Statistics indicated raw gain and the growth in each state, including the District of Columbia, over the past ten years. Texas saw the greatest raw gain in government jobs with a significant increase of 164,400 jobs in 10 years. Its current total is 1,781,600. The state with the second highest increase was Virginia, with 82,300 new jobs over 10 years, and third was North Carolina with 66,600 new jobs.
As for the biggest growth rate, the state of Wyoming earned the number one spot with 17.8 percent. Wyoming increased its number of government jobs by 11,100 over the past 10 years and now has 73,400. Delaware ranked second with 14.72 percent, and Nevada was third with 14.03 percent.
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US Manufacturing Increased in April, 10-Month High
The Institute for Supply Management released a report last Tuesday that indicates strong growth in the economy. With the rise of manufacturing activity in the US, overall factory activity in the country increased in April and reach a higher rate than what economists were expecting.
According to ISM’s report, the index of manufacturing activity increased from 53.4 in March to 54.8 in April. The above 50 rate for the month of April indicated expansion and the strongest rate in 10 months. Economists had been expecting a lower rate of 53.0 due to slow hiring, decreased factory output, the increase in unemployment benefits applications, and lower rates in other sectors.
The increase in manufacturing activity was influenced by the increase in new orders as well as job growth. About 22,000 new positions were created in the month of April and hiring in factories was not only steady, but increased from 56.1 in March to 57.3 in April. New orders increased from 54.5 in March to 58.2 in April, which was the highest rate in a year.
Manufacturing accounts for 12 percent of the country’s economic activity, and its increased activity is a positive indication that economic recovery is in process.
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US Consumer Sentiment Increased in April, Highest in 14 Months
Consumers in the US are becoming increasingly confident in the economy according to reports on consumer sentiment. A report released by the University of Michigan last week indicated a rise in consumer sentiment in April to 76.4. It was a notable increase from a month ago, which rated at 75.7. It was also slightly higher than the 75.8 that economists were expecting. In addition, the final reading for March’s consumer sentiment was 76.2, which was lower than April’s initial reading, making this month’s result the highest in 14 months, since February 2011.
According to the University of Michigan, the increase in the level of consumer sentiment was due to the confidence of many consumers that there would still be job gains in the future. Consumers are hopeful that the unemployment rate will cease and begin to decline. In addition, consumers are viewing their finances in a more positive light, which has started to enhance their buying conditions.
However, despite the increase in consumer sentiment for April, the consumer expectations index decreased slightly. The revised reading for the consumer expectations index was noted at 72.3 from the initial reading of 72.5. Nevertheless, it is still quite a bit higher than the 69.8 rating in March.
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New Sales In The U.S. Single Family Homes Higher Than Expected In March
Sales for single-family houses in the U.S. have shown a significant increase in the month of March compared to expectations from many economists, although it fell from the revised increase in the month of February. Reports released by the U.S. Census Bureau and the Department of Housing and Urban Development indicate an increase of 328,000 sales for new single-family houses, a fall of 7.1 percent from the previous month.
According to the commerce department, the seasonally adjusted rate of 328,000 for the sales of new-single family homes had exceeded the expected rate of 319,000 created by economists. However, the revised rate of purchases in February had also increased to 353,000, making the rate of purchases in the month March slightly lower. Nevertheless, the rate for March 2012 is significantly higher compared to that of last year’s rate of 305,000 for the same month.
Also included in the report by the commerce department are statistics of sale prices for new homes in the month of March. The average sales price of new homes sold in March was $291,200 with a median sales price of $234,500, which is higher compared to last year’s estimates.
These recent values in the housing market indicate signs of market stabilization which includes cheaper borrowing costs, record low inventory count, increased home sales and gains in home prices.
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