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Consumer pessimism ebbs as prices drop

An index from Thomson Reuters and the University of Michigan is 21% higher than it was in December 2008. People cite widespread holiday sales and a better jobs outlook for their improved optimism.

December 24, 2009|By Tiffany Hsu

Consumers say they are feeling much less pessimistic in December than they were in November, thanks to widespread holiday sales and a more hopeful outlook on jobs and the economy, according to a study released Wednesday.

Consumer sentiment is at its highest point since September, settling at 72.5 on an index from Thomson Reuters and the University of Michigan. The index was up nearly 8% from its 67.4 mark in November, and up nearly 21% from 60.1 in December 2008.

But economists warned that although the improvement seems to signal a rebound, similar gains recently have been quickly reversed by a still-volatile economy.

Many consumers are also still concerned about their personal finances.

"While most think the worst is over, the problem is that consumers are still quite uncertain about when prospects for their own finances will improve," Richard Curtin, chief economist for the survey, said in a statement. "Even when consumers become convinced that sustained gains will be forthcoming, there will still be strong spending head winds."

Half of consumers said in early December that their financial situation had worsened. Economists expect that many Americans who are still dealing with tight credit will squirrel away money and try to tamp down debt.

But it was the smallest percentage of people since September 2008 to complain that their finances had deteriorated. In November, 53% of consumers fell into the group, while 57% were in the category last December.

Around half of all households expected no boost to their income in the next year, though some higher-income families reported more recent income increases. Consumer spending is expected to increase just 1.6% in 2010, the survey's economists said.

While 54% of consumers still expect unfavorable economic conditions, fewer people have a dour attitude compared with December 2008, when more than three quarters saw bad times ahead. Just 20% of consumers think the economy will dive further.

The optimism could be buoyed by an employment market that seems less gloomy and the heavy discounts used by retailers to encourage spending, according to the report. Compared with the 1% of consumers who said they heard about job gains in December 2008, 22% reported good news this year.

And more consumers have mentioned deep price cuts on household goods than at any other point in the survey's six decades.

In another sign that spending could be on the upswing, the index measuring consumers' expectations six months from now rose 3.6% to 68.9 from 66.5 in November, a 27.6% increase from the 54 posted a year ago.

tiffany.hsu@latimes.com

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