WRAPUP 2-US consumer sentiment at 5-year high; inventories jump

Fri Nov 9, 2012 12:41pm EST

* UMich consumer sentiment index rises to 84.9 in early Nov
    * Wholesale inventories gain 1.1 pct in September
    * Forecasters trim 4th-quarter growth expectations -survey


    By Leah Schnurr
    NEW YORK, Nov 9 (Reuters) - An increasingly upbeat view of
the economy and jobs market drove U.S. consumer sentiment to a
more than five-year high in early November, while a jump in
wholesale inventories suggested the economy grew more than
initially estimated last quarter.    
    It was the fourth month that Americans adopted a rosier
economic outlook, even as financial markets show increasing
anxiety about the approach of the "fiscal cliff" of spending
cuts and tax increases set to take effect in the new year, on
fears they could push the country back into recession. 
    Separate data from the government also released on Friday
showed wholesale inventories rose in September by the most in
nine months, prompting economists to raise their forecasts for
third-quarter growth. Inventories are a key element of the
government's measure of economic growth and can highlight
underlying strength or weakness. 
    The index of consumer sentiment from Thomson
Reuters/University of Michigan rose to 84.9 in November from
82.6, topping economists' expectations for a reading of 83.
    It was the highest level since July 2007. The measure of
consumer expectations also hit a more than five-year high,
rising to 80.8 from 79.0. Most interviews for the survey were
done before Tuesday's presidential election.
    "It shows that the U.S. economy is on a decent footing
heading into the so-called fiscal cliff," said Joe Manimbo,
market analyst at Western Union Business Solutions in
Washington.
    "There's a lot at stake, and there's a lot of momentum that
could be lost if lawmakers don't get their act together."
    Survey director Richard Curtin said the re-election of
President Barack Obama should not have an impact on overall
expectations going forward, but if Washington does not act
quickly to avoid the fiscal cliff, with its $600 billion in
automatic spending cuts and tax rises, consumers could face a
shock. 
    Friday's data came a week after the government's monthly
labor market report showed job growth picked up in October. The
unemployment rate ticked up to 7.9 percent, though it held below
8 percent for the second month in a row.
    But the chances of a comprehensive legislative solution to
the fiscal cliff before Jan. 1 are considered slight, and
members of Congress have been looking for a temporary fix to buy
time.
    While a negative conclusion to the discussions poses a risk
to confidence and spending, "uncertainty over the ultimate
outcome doesn't appear to have troubled consumers unduly thus
far," Barclays economist Peter Newland wrote.
    Obama was expected to make a statement at 1:05 p.m. EST
(1805 GMT). 
    The consumer sentiment survey is now consistent with a gain
in consumer spending of 2.5 percent next year, the report said.
    "Unless the congressional Grinch steals Christmas, prospects
for the holiday shopping season have improved markedly," said
Curtin.
    U.S. stocks bounced higher after the data as equities tried
to recoup some of the steep losses of the past two days.
    
 
    
    INVENTORIES RISE
    The Commerce Department reported that total wholesale
inventories gained 1.1 percent to $494.2 billion, beating even
the highest estimate in a Reuters poll of analysts.
    JPMorgan and Barclays raised their estimates for
third-quarter gross domestic product growth to 3.2 percent from
2.8 percent following the report.
    The government's first reading of growth for the third
quarter showed the economy expanded at a 2.0 percent rate,
though other recent economic reports, including data on trade
and factory orders, have suggested a faster pace of growth.
    Still, some economists cut their expectations for growth in
the fourth quarter, according to a separate survey released on
Friday.
    Economists expect to see growth at an annual rate of 1.8
percent in the current quarter, down from the previous estimate
of 2.2 percent growth, according to the Philadelphia Federal
Reserve Bank's fourth-quarter survey of 39 forecasters.
FILED UNDER: