Consumer confidence rises in Dec., but still weak

[December 30, 2009]  NEW YORK (AP) -- Americans are ending 2009 feeling better about the economy than when the year began, buoyed by optimism that job prospects will improve in the first half of 2010.

Consumer expectations for the job market reached their highest level in two years, but most people remain downbeat about their current prospects, according to a monthly survey released Tuesday. The survey also showed fewer people plan to buy automobiles and homes in the next six months compared with November.

"This doesn't mean that the economy isn't getting better, but it does raise doubts on how much actual improvement in the economy we've actually seen," said Mark Vitner, senior economist for Wells Fargo Securities in Charlotte, N.C.

If past recoveries from recession are a guide, the rebound of confidence will take many more months.

The Conference Board's Consumer Confidence Index rose in December for the second month in a row, to 52.9, from a revised 50.6 in November.

That's slightly higher than the 52.0 prediction of economists surveyed by Thomson Reuters, but still far short of the 90 that would signify a solid economy.

Economists watch the confidence numbers closely because consumer spending on goods and services accounts for about 70 percent of U.S. economic activity as measured by the federal government.

Without a marked turnaround in the job market, consumers will continue to "hunker down" and confidence will remain low, Vitner said.

The unemployment rate dipped in November to 10 percent, from a 26-year high of 10.2 percent in October. Some analysts worry it will start climbing again in coming months, perhaps rising as high as 10.5 percent next summer.

An uneven housing market is unlikely to help. The closely watched Case-Shiller home price index released Tuesday showed that a national index of home prices rose for the fifth month in a row in October, but only 11 of the 20 metro areas tracked showed gains.

The consumer confidence index hit a historic low of 25.3 in February after registering 37.4 in January and enjoyed a three-month climb from March through May, fueled by signs that the economy might be stabilizing.

Since June, it has bounced along anemically between 47 and 55 as rising unemployment has taken a toll.

The bright spot in December's confidence index was consumers' six-month outlook, which rose from 70.3 to 75.6, the highest level since December 2007. But the other main component, which measures shoppers' current assessment, fell to 18.8 from 21.2. That level remains at a 26-year low.

"Regarding income, however, consumers remain rather pessimistic about their short-term prospects, and this will likely continue to play a key role in spending decisions in early 2010," Lynn Franco, director of The Conference Board Consumer Research Center.

The survey revealed that the proportion of consumers anticipating an increase in their incomes declined from 10.9 percent to 10.3 percent.

The economy's health is riding on consumers. The overall economy as measured by the gross domestic product grew at an annual rate of 2.2 percent in the July-September quarter. That was the first positive performance for GDP after four consecutive quarters of decreases, and it marked the strongest sign to date that the recession that started in December 2007 has ended.

Economists expect GDP to show even stronger growth in the current October-December quarter, but the recovery could sputter in coming months if consumers, worried about jobs, decide to cut spending.

The problem is that it can take a long time for confidence to rebound. During the last recession in 2001, it took about two years for confidence to climb back to a healthier level of 90. The index peaked at 144.7.

In the early 1990s, it took three years for confidence to rebound to healthier levels because the economy was in a jobless recovery, similar to what's currently playing out.

The slight improvement in consumer sentiment could be seen in holiday shopping trends.

Shoppers spent a bit more than expected when adjusting for the extra selling day between Thanksgiving and Christmas this year, according to MasterCard Advisors' SpendingPulse, which track all forms of payment, including cash.

However, shoppers focused on practical items and bypassed gift cards, opting for discounted items instead.

Michelle Baran of Atlanta said the economy hit her hard because her boyfriend's pay was cut by 50 percent. The 43-year-old was at Atlanta's Lenox Square Mall on Tuesday returning clothes she had bought for herself.

"I feel like the economy is getting better," she said. "But the effects of the economy are still with me. I'm still being careful."

[Associated Press; By ANNE D'INNOCENZIO]

Associated Press writers Ashley M. Heher in Chicago, Mae Anderson in Atlanta and J.W. Elphinstone in New York contributed to this report.

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