Consumer sentiment brightened in January to 11-year high

(Bloomberg) — American consumer confidence reached an 11-year high in January as a strengthening labor market and plunging gas prices kept households looking on the bright side.

The University of Michigan final consumer sentiment index rose to 98.1, the highest since January 2004, from 93.6 in December. The median estimate in a Bloomberg survey of 62 economists projected a reading of 98.2, the same as the preliminary figures issued earlier this month.

Americans were the most upbeat about the economic outlook in a decade thanks to dollars saved at the gas pump and better employment prospects in a healing job market. Consumer spending in the fourth quarter climbed by the most since 2006 as persistently low energy prices made paychecks go farther in the absence of larger wage growth.

“Consumer optimism did not waver in late January,” Richard Curtin, director of the Michigan Survey of Consumers, said in a statement. “The improvement has been due to more favorable trends in income and employment as well as the more recent declines in gas prices.”

The economy grew at a 2.6 percent annualized rate in the fourth quarter of 2014, after expanding at a 5 percent pace in the previous three months, the strongest in more than a decade, a Commerce Department report showed Friday. The average growth rate since the expansion began in June 2009 has been 2.3 percent.

The data showed consumer spending grew at a 4.3 percent pace in the last three months of 2014, the most since the first quarter of 2006.

Survey results

Forecasts for the Michigan index ranged from 97 to 100 in the Bloomberg survey. The measure averaged 84.1 last year.

The survey’s current conditions index, which captures Americans’ assessments of their personal finances, rose to 109.3 this month, the highest since January 2007, from 104.8. It was revised from 108.3 earlier this month.

The measure of expectations six months from now increased to 91 from 86.4 in December, revised from a preliminary 91.6 reading.

Americans expect an inflation rate of 2.5 percent in the next year, the lowest since September 2010 and down from 2.8 percent in December. Over 5 to 10 years, consumers project that prices will rise 2.8 percent, the same as in the prior month.

The world’s largest economy is expanding as progress in employment and a sustained drop in fuel prices improve household balance sheets.