Dec. 13, 2004--In a preliminary survey of December, released Friday, the University's consumer sentiment index climbed to 95.7, a gain from November's 92.8. The survey, which weighs the attitudes of 500 consumers, found that both current economic conditions and future expectations have improved since last month. The current condition index rose 2.1 points to 106.8, while future expectations improved to 88.8 from 85.2 in November.
While a boost in consumer confidence is good news, the University's preliminary data is often downgraded later. Last month, for example, the preliminary survey measured consumer confidence at 95.5. By the end of the month, however, the index was revised to 92.8.
Recent reports indicate that December's preliminary numbers may be downgraded, too.
OPEC's plan to cut oil production by one million barrels, for example, will likely stanch the fall in oil prices, the very impetus for early December's improvement in consumer confidence.
"Since prices have fallen so far, so fast since October, a corrective rally is highly likely," said Jay Bryson, global economist at Wachovia Corp.
Also, input costs for manufacturers are rising faster than the price of consumer goods, 0.5% and 0.2% respectively, according to the Department of Labor's Producer Price Index. This means manufacturers are sacrificing profits to maintain market share, which is an obvious benefit to consumers. At the same time, though, shrinking margins cripple stock prices, which harms consumer confidence.
"There's no free lunch," Bryson said. "Companies will either increase prices to maintain their margins, or keep their prices steady and let Wall Street hammer them. Either way, consumer confidence will be pushed down."
Jobs security is also a problem facing consumers. According to the Challenger Job-Cut Report released on Tuesday, 104,530 people were laid off in November, a 2.6% increase from the previous month. And in a Labor Department report released yesterday, the number of jobless claims last week rose to 357,000, up 8,000 from the week before.