Consumer confidence moved sharply higher in February to 69.6, rising 11 points and easily beating expectations.
The mood of consumers reversed course after dropping precipitously in January to its lowest point since late 2011. This month’s reading more than erased last month’s disappointment, and suggests confidence is still on par with readings late last year.
Gradual improvement in the employment market, rising home prices, and higher equity prices should have positively contributed to consumer confidence in recent months.
Households are undoubtedly feeling the pinch of the recent surge in gas prices, compounding the squeeze from higher payroll taxes and lower take home pay. Nonetheless, consumers appear to have absorbed the impact and are perhaps finding it to be less severe as a practical matter than initially feared.
Although the economy slowed to a crawl late last year, the jobs market is still pushing forward. Expectations are for 4th quarter GDP to be revised modestly higher later this week, supported by decent consumer spending.
With confidence still at a relatively low level and household budgets being squeezed, the outlook for retail sales remains lackluster in the near-term. The looming sequester remains a significant wild card for the economy, and looks likely to become a reality.
As the practical ramifications of the sequester become more clear, the slowly growing economy remains vulnerable. With consumer spending already likely to take a hit, additional headwinds to growth could weigh heavily on consumer confidence and spending in the months ahead.
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