After years of doubts, Americans turn more bullish on economy

By Reuters

Dec 13, 2014 12:27 AM EST

Pessimism and doubt have dominated how Americans see the economy for many years. Now, in a hopeful sign for the economic outlook, confidence is suddenly perking up.

Expectations for a better job market helped power the Thomson Reuters/University of Michigan index of consumer sentiment to a near eight-year high in December, according to data released on Friday.

U.S. consumers also saw sharp drops in gasoline prices as a shot in the arm, and the survey added heft to strong November retail sales data that has showed Americans getting into the holiday shopping season with gusto.

"Surging expectations signal very strong consumption over the next few months," said Ian Shepherdson, an economist at Pantheon Macroeconomics.

While improvements in sentiment haven't always translated into similar spending growth, consumers at the very least are feeling the warmth of several months of robust hiring, including 321,000 new jobs created in November.

When asked in the survey about recent economic developments, more consumers volunteered good news than bad news than in any month since 1984, said the poll's director, Richard Curtin.

Moreover, half of all consumers expected the economy to avoid a recession over the next five years, the most favorable reading in a decade, Curtin said.

The data bolsters the view that the U.S. economy is turning a corner and that worker wages could begin to rise more quickly, laying the groundwork for the Federal Reserve to begin hiking its benchmark interest rate to keep inflation from eventually rising above the Fed's 2 percent target.

Overall, the sentiment index rose to a higher-than-expected 93.8, mirroring levels seen in boom years like 1996 and 2004.

Many investors see the Fed raising rates in mid-2015, and policymakers will likely debate at a meeting next week whether to keep a pledge that borrowing costs will stay at rock bottom for a "considerable time."

Consumers see faster inflation ahead. Over the next year, they expect a 2.9 percent increase in prices, up from 2.8 percent in November, according to the sentiment survey.

Their expectations run quite counter to recent price data. The Labor Department said separately its producer price index dropped 0.2 percent last month, brought lower by falling gasoline prices. Prices were soft even excluding the drag from gasoline.

U.S. stocks briefly cut losses after the buoyant sentiment data but stayed lower on the day as investors fretted about declining oil prices and what that said about global demand.

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