Consumers 'A Little More' Confident About Economy Gasoline prices are rising and jobs remain scarce, but new surveys are finding that Americans are growing more optimistic about the economy. Confidence is now at the highest level in three years.
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Consumers 'A Little More' Confident About Economy

A pedestrian carries shopping bags as he walks through Union Square in San Francisco. The Conference Board's Consumer Confidence Index reached the highest level in three years in February. Justin Sullivan/Getty Images hide caption

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Justin Sullivan/Getty Images

Even though gasoline prices are rising and jobs remain scarce, new surveys are finding that Americans are growing more optimistic about the economy. Confidence is now at the highest level in three years.

On Friday, the closely watched Thomson Reuters/University of Michigan survey showed that in February, the consumer sentiment index rose to 77.5, up from 74.2 in January. That marked the highest level since January 2008.

Earlier this week, another widely followed survey — the Consumer Confidence Index — showed that confidence surged in February, marking the fifth consecutive month of increases. The index stood at 70.4, up sharply from 64.8 in January.

That survey, conducted monthly by Conference Board Consumer Research Center, gauges the perceptions of consumers about job and business conditions, as well as their outlook for the next six months.

Consumer Confidence Index

Consumer Confidence Index

The consumer indexes are still below the levels that would suggest a strong economy, but analysts say the recent upticks show Americans believe the economy's recovery is gaining momentum.

"It finally appears that consumers are beginning to believe the economic recovery is under way," says Lynn Franco, director of the Conference Board Consumer Research Center. "Overall, it's still a reading that's relatively weak but much stronger than where we were a year ago."

More than 17 percent of consumers said they expect their incomes to rise, marking a 2-percentage-point increase from last month. Some economists attribute the brighter outlook to factors such as increased overtime. Franco says February is the first month since the financial crisis hit in 2008 in which consumer optimism about income growth outscored pessimism.

Most economists say the improving outlook is tied to the reduction in layoffs, increase in incomes and gains in the stock market, which have begun to replenish the losses workers suffered in their 401(k) and other retirement plans.

In addition, consumer credit became more available. For the fourth quarter ended Dec. 31, the auto leasing website posted its first increase in approvals of credit applications for first-time customers since the start of the recession.

"With the unemployment rate down just a bit, people feel good. The stock market goes up, people start feeling more comfortable. And when they see other people shopping or spending money, even if they are not, they get a little more confidence," says Chris G. Christopher, senior principal economist at IHS Global Insight. "So, it's a mixed bag of things."

Reasons Why Confidence Is Up

Fewer job layoffs

Higher incomes

Loosening of consumer credit

A rising stock market, which is helping to restore 401(k) accounts

Reasons Why Confidence Could Fall

Continued falling home values

Potentially higher grocery prices

Rising gasoline prices

Turmoil in Africa and the Middle East

Another recent survey found that optimism has taken hold even among some minorities who have been disproportionately harmed by the downturn. For instance, the jobless rate among black Americans was 15.7 percent in January, compared with 9 percent for the nation overall.

Yet in a recent poll commissioned by The Washington Post, the Kaiser Family Foundation and Harvard University, the majority of black Americans said they believe their financial conditions will improve in the next year. Slightly more than half of Hispanics said the same.

White respondents expressed the most pessimism. They were most likely to say the economy won't recover for a "long time" and that lifestyle changes they made in response to the downturn would become permanent, according to the poll.

Economists say there are a number of factors that could undermine confidence in coming months. Among the potential problems are rising gasoline and grocery prices, falling home prices and turmoil in the Middle East and North Africa.

"The political turmoil in Egypt or Libya, that can cause problems for confidence and could significantly impact the consumer," Christopher says.

A continued rise in gas prices could be especially damaging to confidence, as it reduces consumers' spending power. The average price of gas in the U.S. hit $3.19 per gallon Tuesday — compared with $2.66 the year earlier — reaching its highest level since October 2008.

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