Americans' Economic Confidence And Wage Growth Rise To Seven- And Six-Year Highs

Confidence in the U.S. economy rose in October to a seven-year high as American consumers expect to earn more in coming months, according to a closely watched survey. The reported uptick came after news the U.S. economy expanded at its fastest six-month pace in more than a decade. Meanwhile, wages rose at their quickest rate in more than six years in the third quarter, the Bureau of Labor Statistics said Friday.

Strong wage growth has been the missing component of the latest economic recovery. But in the July-to-September period, wages rose an annualized 3 percent.

“The fundamentals of the economy remain very strong. The conditions are in place for continued above-trend growth,” Gus Faucher, a senior economist at PNC Financial Services in Pittsburgh, said via email.

The Thomson Reuters/University of Michigan consumer sentiment index rose to 86.9 this month from 84.6 in September. The latest level is the highest since July 2007, five months before the economy dipped into recession. However, the figure is still lower than the average readings above 90 posted before the financial crisis.

Meanwhile, Americans also cut their spending in September after laying out more than economists expected in August on big-ticket items such as cars as well as on back-to-school shopping. Overall household spending fell 0.2 percent last month from August, the Commerce Department said Friday. It was the first decline since January’s polar vortex froze shopping and followed a 0.5 percent gain in August.

“Consumers are slightly more pessimistic in their evaluation of the current economic circumstances in October compared to September,” Chris Christopher, director of U.S. consumer economics for IHS Global Insight, said via email. “However, they are significantly more optimistic in their outlook.”

Stock-market volatility in the middle of October, the Ebola virus disease outbreak and higher food prices are weighing on consumer sentiment, but lower gasoline prices are offsetting negative attitudes, Christopher said. A similar survey by the Conference Board Tuesday showed Americans’ confidence rebounded in October after retreating in September. That index rose to 94.5 from 89.0 last month.

The elevated consumer confidence is likely to lift spending on clothes and other goods from retail stores during the holiday shopping season, economists say, although higher confidence doesn’t always translate into higher spending. The National Retail Federation has forecasted holiday sales will rise 4.1 percent this season, a three-year high.

Although the Bureau of Economic Analysis reported Thursday that the U.S. economy grew at 3.5 percent in the third quarter, the growth was fueled in part by a 16 percent hike in defense spending. That was the largest increase in this line item since the launch of the second war in Iraq in 2003.

“We expect defense spending to plunge this quarter, subtracting a similar amount from fourth-quarter [gross domestic product] growth,” said Paul Dales, senior U.S. economist for Capital Economics.