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Survey: Buyers are more upbeat

Consumer confidence surges in December's study, but some say they are are still worried about energy costs.

Associated Press
Published December 29, 2005

Consumer confidence has nearly recovered from the beating it took from Hurricane Katrina and other severe storms, boding well for spending in 2006.

The Conference Board said Wednesday that declining gasoline prices and improving job opportunities boosted its Consumer Confidence Index to 103.6 in December from 98.3 in November. That was better than the 103.0 reading analysts had expected.

The index plummeted after Hurricane Katrina on Aug. 29 devastated Gulf Coast states and disrupted fuel and trade for much of the nation, but is approaching the 105.5 reading preceding the storm.

The report is closely watched because consumer spending drives about two-thirds of the U.S. economy, and gains in sentiment tend to precede increases in spending.

Gary Thayer, chief economist for A.G. Edwards & Sons Inc. in St. Louis, said it was "encouraging that confidence has bounced back after the hurricanes, and it suggests the economy has some good momentum going into the new year."

Still, he expects economic growth to slow from about 3.5 percent this year to 3.2 percent in 2006 and 3 percent in 2007. Higher interest rates are likely to dampen consumer borrowing and weaken the housing market, discouraging some consumers from borrowing against their homes to fund spending, he said.

"But we're looking at a moderation, not a major slowdown," Thayer said.

Higher fuel prices remain a concern. The Energy Information Administration reported that the national average retail price of regular gasoline fell 1.4 cents to $2.197 a gallon in the week ended Monday, but that leaves gasoline prices more than 40 cents higher than a year ago. And crude oil prices rose after an Iranian newspaper reported Wednesday that Iran's oil minister, Kazem Vaziri Hamaneh, suggested the Organization of Petroleum Exporting Countries should consider curbing production by 1-million barrels a day when it meets Jan. 31.

The stock market, which had been buoyed by the consumer confidence report, gave up some gains on the oil news.

The Dow Jones industrial average rose 18.49, or 0.17 percent, to 10,796.26. Broader stock indicators were narrowly higher. The Standard & Poor's 500 index rose 1.63, or 0.13 percent, to 1,258.17 and the Nasdaq composite index rose 2.05, or 0.09 percent, to 2,228.94.

The Conference Board index is derived from responses received through Dec. 20 to a survey mailed to 5,000 households in a consumer research panel.

Although the overall index has risen strongly in the past two months, the survey indicates that consumers are more confident of current economic conditions than they are of conditions in the future.

The index measuring consumers' assessment of current-day conditions improved to 121.5 in December from 113.2 in November, while the index measuring consumers' assessment of conditions in the next six months advanced to 91.6 in December from 88.4 the month before.

The difference largely reflected perceptions of employment.

In their appraisal of current-day conditions, 23.3 percent viewed jobs as "plentiful" in December, up from 21.1 percent in November. But looking ahead, 14.3 percent of those surveyed in December said they expected more jobs to be available, up from 14.1 percent in November.

[Last modified December 29, 2005, 01:00:08]

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