Gas prices are up, but the stock market is, too. Home prices are down, but so is unemployment.
“The resilience suggests that jobs remain a more important concern for consumers than gasoline prices,” said Mark Vitner, an economist at Wells Fargo Securities.
Gas prices have risen almost every day this month, yet the Consumer Confidence Index for March held nearly steady at 70.2, according to the New York-based private research group The Conference Board. February’s reading, revised upward to 71.6, was the highest it’s been in a year.
Consumer confidence is widely watched because consumer spending accounts for 70 percent of economic activity. Confidence has been fragile since the U.S. recession began in late 2007, despite several short-lived spikes.
Now, it appears to be rebounding as Americans seem to be looking at the proverbial glass as half-full despite continued weaknesses in the economy, including rising gas prices.
The measure is still significantly below the 90 reading that indicates a healthy economy – a level the index has not been near since the recession began in December 2007. But the current reading is a long climb from the 40 figure it hit last October, not to mention its all-time low of 25.3 in February 2009.
Confidence levels are closer to a stable economy than not, with Americans feeling more confident than they have in a long time.
Nicklas Johnson, a software engineer who has been with the same company for 14 years, said recruiters are starting to solicit him for jobs. That’s making him more confident about spending a little more despite the fact that gas prices are rising and the value of his home has plummeted.
“I would be lying if I said gas prices aren’t in the back of my mind,” said the 36-year-old who lives in San Mateo, Calif. “But I’m very optimistic that employment is rising ... I’m more encouraged about improvements in the job market than discouraged about inflation.”
Johnson is like many Americans, who are more upbeat as the job picture improves. The economy has added an average of 245,000 jobs per month from December through February. And the unemployment rate has declined to 8.3 percent, the lowest in three years.
Adding to that, the stock market has risen at a healthy pace this year, making many Americans wealthier than they have been in the past few years. In fact, the Standard & Poor’s 500 index came close to a four-year high on Monday.
But there are reasons for Americans to temper their optimism. The end of last year was the best for home sales in five years, but a continued drop in home prices suggests the housing market remains weak.
The widely-watched Standard & Poor’s/Case-Shiller home-price index, released Tuesday, showed that home prices fell in January for a fifth straight month in 16 of 19 major U.S. cities as modest sales increases have yet to boost prices.
And the biggest threat to consumer confidence is still gas prices. The Consumer Confidence survey of consumers, conducted from March 1 through March 15, showed shoppers’ worries about inflation rose to the highest level in about a year, alongside a rise in gas prices.
The national average for gas was $3.74 a gallon at the start of March, up from $3.52 on Feb. 15. Gas prices rose 8 cents during the first two weeks of March, the period measured by the consumer survey. Since then, it has risen another 8 cents to $3.90, which is less than a dime away from last year’s high reached in early May. The record high of $4.11 was set in July 2008.
And there’s more pain at the pump on the horizon. Gas prices typically climb in the weeks leading up to Memorial Day weekend — the traditional kickoff of the summer driving season.
Still, many economists believe that Americans’ confidence is finally recovering. Chris Christopher, senior principal economist at IHS Global Insight, expects consumer confidence to climb another 10 points by the end of the summer, as long as the pace of hiring continues its momentum.
Barring any major catastrophes in the Persian Gulf or a severe spike in civil unrest in Nigeria, he expects gas prices to peak at $4.20 per gallon around Memorial Day and then start to decline in September.
“I think there should be enough momentum to lift consumer confidence out of recession territory,” he said.