Americans feeling better about economic recovery

Americans feeling better about economic recovery

In this Feb. 21, 2012 photo, a customer exits Lowe's, in New York. A private research group says that consumer confidence in February rose to the highest level since a year ago when the U.S. economy’s outlook started to look brighter before souring again.

NEW YORK (AP) -- Americans are feeling better about the economy again, but will it last this time?

A widely watched barometer of consumer confidence surged in February to its highest level in a year as Americans took note of improving job prospects among friends and family and falling unemployment, which is now at a three-year low.

The brighter assessment released Tuesday by a private research group reflected a more upbeat attitude for the nation generally as the economy picks up. That is a boon for President Obama as he seeks re-election. Polls, including a recent Associated Press-GfK survey, show the Democratic incumbent is beginning to benefit politically from improved views of the economy.

"The economy is getting momentum. Clearly, shoppers are more optimistic about their job prospects," said Amna Asaf, economist at Capital Economics.

The rising confidence among consumers gave confidence to Wall Street, too, helping it to reclaim the last of the ground it held before plunging into the depths of the Great Recession. The Dow Jones industrial average closed above 13,000 on Tuesday for the first time since May 19, 2008, four months before the fall of Lehman Brothers investment bank and the worst of the financial crisis.

Jack Ablin, chief investment officer at Harris Private Bank, called it "a momentous day for investor confidence."

Tuesday's gain puts the Dow 1,160 points below its all-time high, set Oct. 9, 2007. The Great Recession began two months later.

The milestone could draw some fence-sitting investors back into the market and add to the gains, said Brian Gendreau, market strategist at Cetera Financial Group.

But consumer confidence is still below the level of a healthy economy, and trouble could lie ahead. Rising gas prices could sully shoppers' mood and derail the economic recovery. There are also fears about a nuclear showdown with Iran and the festering European debt crisis. Those worries could hurt demand for U.S. imports and make American companies pull back in hiring.

The confidence index is closely watched because consumer spending constitutes 70 percent of U.S. economic activity.

The big question mark is the price of gasoline, which Asaf said has climbed 20 cents per gallon since the confidence survey concluded two weeks ago.

The price of gas is a big issue because it has an immediate effect on shoppers' pocketbooks, particularly low- to middle-income households that are already squeezed by higher costs for basics such as food.

The average U.S. price of a gallon of gasoline was $3.69, according to the Lundberg Survey of fuel prices released Sunday.

The Conference Board's Consumer Confidence Index now stands at 70.8, significantly higher than the expected 63. A reading of 90 or above indicates a healthy economy. But the index has not reached that level since December 2007, when the recession began.

Still, Tuesday's numbers were closer to levels that indicate a stable economy than to the danger zone that would suggest trouble.

A year ago, the index rose to 72 as the economic outlook was improving. The February 2011 reading was the highest since before the financial crisis in the fall of 2008. After that, the outlook soured again over the spring and summer.

Lynn Franco, director of the Conference Board Consumer Research, hopes the upward trend will have staying power this time.

"Consumers are really feeling like the worst is behind them," she said. "We are finally seeing some traction, and hopefully over the next few months, that will prove sustainable."

The index dropped to an all-time low of 25.3 in February 2009. Over the past 12 months, it has been going back and forth from the high 60s to the low 40s on continued worries about the economy.

In fact, confidence fell last October to 40.9, the lowest since March 2009, during the thick of the recession.

The Conference Board survey of consumers, conducted from Feb. 1 through Feb. 15, showed shoppers are feeling better about the job market.

Those anticipating more jobs in the months ahead increased to 18.7 percent from 16.4 percent, while those anticipating fewer jobs declined to 16.9 percent from 19.1 percent.

Shoppers have good reason to feel a little better. The government reported that 243,000 jobs were added in January, pushing down the unemployment rate to 8.3 percent, the lowest in three years. Unemployment has fallen five months in a row for the first time since 1994.

Meanwhile, the four-week average of people seeking unemployment aid fell to the lowest point in four years.

Even the housing market, though still weak, is showing signs of recovery. Home values remain depressed, according to the latest snapshot from a widely followed Standard & Poor's/Case-Shiller home price index. But more people signed contracts to buy homes in January than in nearly two years, according to seasonally adjusted figures from the National Association of Realtors.

In a separate report, the Commerce Department said U.S. businesses slashed spending on machinery and equipment in January after a tax break expired. That pushed orders for long-lasting manufacturing goods down 4 percent, the biggest monthly decline in three years.

But economists suggested the drop was largely because most companies made big purchases at the end of last year to qualify for the tax credit, which expired at the end of December. They noted that demand for so-called core capital goods, a good measure of business investment plans, fell sharply in January after surging in December to an all-time high.

Durable goods are products such as appliances and cars expected to last at least three years. Orders tend to fluctuate sharply from one month to the next. But the overall trend in orders has increased steadily since the recession ended nearly three years ago.

"We see no evidence of underlying slowing in the industrial economy," said Ian Shepherdson, chief economist at High Frequency Economics. "So we look for a rebound in February and the re-emergence of the upward trend over the next couple of months."