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Instant view: Consumer sentiment jumps in December

NEW YORK (Reuters) - U.S. consumer sentiment rose more than expected in early December while an index of current conditions jumped to its highest level since January 2008, a survey released on Friday showed.

KEY POINTS: * The Thomson Reuters/University of Michigan’s preliminary December reading on the overall index on consumer sentiment came in at 74.2, up from 71.6 in November. * That was the best level for sentiment since June and the third-highest level since the start of 2008, according to the survey. It was also above the median forecast of 72.5 among economists polled by Reuters. * At the same time, the survey’s barometer of current economic conditions rose to 85.7 versus 82.1 in November, and it was above a forecast of 83.1. It was also the highest reading since January 2008, just after the economic downturn began.

COMMENTS: JOHN RYDING, CONRAD DeQUADROS, RDQ ECONOMICS, NEW YORK: “Consumer sentiment improved in early December and unemployment claims have continued to trend lower. This is likely related. The moderation in medium-term inflation expectations in this report will probably keep many Fed officials leaning toward lower inflation as the greater risk in their forecast.”

IAN LYNGEN, SENIOR GOVERNMENT BOND STRATEGIST, CRT CAPITAL GROUP, STAMFORD, CONNECTICUT:

“Overall, stronger confidence and lower inflation expectations. Consumer confidence came in stronger than expected. Consumers’ view of current conditions improved and the outlook index gained two points to 66.8.

“Inflation expectations moved lower, with one-year expectations at 2.9 percent versus 3.0 percent prior, while 5-year inflation expectations fell 0.1 percentage point to 2.7 percent.

“Treasuries continue to trade lower with the belly leading the way lower. Volumes remain light with cash trading well below the 10-day moving-average.”

THOMAS SIMONS, MONEY MARKET ECONOMIST, JEFFERIES & CO:

“The preliminary results of the December University of Michigan Consumer Sentiment Survey show an improvement to 74.2 from 71.6 in the final November results. The reading is the highest since June 2010. The data is well above expectations. This is the strongest reading since January of this year. Prior to that, the index was last higher than this level in January 2008.”

CARY LEAHEY, MANAGING DIRECTOR AND SENIOR ECONOMIST, DECISION ECONOMICS:

“It’s favorable and it’s certainly consistent with what confidence ought to be doing. If people are out there shopping, they should be feeling better and you’re seeing that in the report. It’s also helping that Congress is moving forward on a tax bill and there’s a better tone in the labor market even though the last jobs report was disappointing.”

ROBERT TIPP, CHIEF INVESTMENT STRATEGIST FOR PRUDENTIAL FIXED INCOME, NEWARK, NEW JERSEY

“Good numbers, and basically the market, after being excessive pessimistic, is having to reevaluate following the announcement of QE2, better-than-expected data, and the stimulus from the extension of the tax cuts. So the market had a big swing in sentiment.

“This is something of a range-bound market as we go from optimism to pessimism on the recovery. It’s going to be a long time before we break out of this range. Though we get good data, there are a lot of headwinds. We’re taking some growth from 2012 with the tax change and pulling it into 2011. There’s a ton of fiscal consolidation that has to take place, that’s going to be a big headwind.

“Bears are obviously watching to see if China raises its rates, given the size and import of China’s economy, but that seems to be playing out in a pretty orderly fashion. The situation in Europe continues to get bogged down. They’re having a banking crisis in a structure where they don’t have a lender of last resort. The market is keeping those spreads volatile.”

PIERRE ELLIS, SENIOR GLOBAL ECONOMIST, DECISION ECONOMICS INC., NEW YORK:

“This is an indication of the favorable development we are seeing so far with the year-end holiday shopping season. It adds to a growing number of economic indicators that are looking better-than-expected. The labor market is clearly improving on a trend, but I’m sure if people are actually feeling it.

“I’m not sure if there will be any changes in next week’s policy statement. They may change the economic language on the growth side. The hawkish members on the Fed may seize on this cluster of strong numbers and use them to support the argument against (quantitative easing). The debate on QE2 will become more heated in 2011.”

SEAN INCREMONA, ECONOMIST, 4CAST LTD, NEW YORK:

“It was stronger than expected -- we were above market and it came in above our forecast. It seems that the rebound in consumer sentiment is continuing, we are seeing that in other indexes as well. This is going to help support consumer spending through Q4 and probably into Q1 as well.

“We are in the gradual recovery camp and are definitely on the upper side of that now. It is still tough not to get too far ahead of yourself because we are seeing good improvement from weak levels but we are still seeing some soft spots.”

MARKET REACTION: STOCKS: U.S. stock indexes edged higher BONDS: U.S. Treasury bond prices were little changed FOREX: The dollar was flat

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