By Josh Mitchell
Americans are more confident in the economy than at any point in nearly 13 years, according to a closely followed survey that showed high expectations for growth during the new Trump administration.
The University of Michigan said Friday its monthly index of consumer sentiment rose 4.7 points from a month earlier to a reading of 98.2 in December, reaching the highest level since January 2004. A measure of consumer views on the current state of the economy rose healthily while a measure of their expectations for growth in the future climbed even more quickly.
Economists surveyed by The Wall Street Journal expected a reading of 98.7 this month.
Richard Curtin, the survey's chief economist, said an unusually high number ofconsumers reported high expectations for the policies of President-elect Donald Trump compared with consumer expectations of previous incoming presidents.
Mr. Trump, a Republican, has pledged to reduce regulations on businesses and toughen the nation's trade stance against foreign countries such as China to give domestic companies a stronger edge in the global marketplace.
"Needless to say, the record gain in consumer confidence was based on anticipated policy changes, with the specific details as yet unknown," Mr. Curtin said in a statement. "On the positive side, such favorable expectations could help jump-start growth before the actual enactment of new policies. A potential drawback is that these favorable expectations will act as a much higher performance standard that people will use to judge the effectiveness of Trump's policies."
Other factors are likely boosting consumer confidence as 2016 closes. The stock market has surged, with the Dow Jones Industrial Average approaching 20000. Gasoline prices remain low despite growth over the past year. Americans' wage growth, while modest, has slowly picked up from earlier in the recovery.
Economists pay attention to consumer sentiment because when households are feeling good about the economy, they are more likely to spend, fueling economic growth. Consumer spending represents about two-thirds of U.S. economic output.
"Ongoing solid readings on consumer confidence reinforce our view that GDP growth should remain firm in the near term, and we see the level of confidence as consistent with ongoing strength in consumer spending," Barclays economists said in a note to clients.
But the outlook remains cloudy. The economy appears to have slowed to a growth rate of between 1% and 2% in the final quarter of the year, according to some economists' projections, after growing at a 3.5% annual rate in the third quarter.
Friday's survey showed consumers have dialed back their inflation expectations, a development that could weigh on the Federal Reserve as it ponders further increases in its benchmark interest rate. Consumers said in December they expected inflation of 2.2% next year, down from their November expectation of 2.4%. They said they expected inflation of 2.3% over the next five years, down from their prior-month estimate of 2.6%.
Write to Josh Mitchell at firstname.lastname@example.org
(END) Dow Jones Newswires
December 23, 2016 11:38 ET (16:38 GMT)
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