Consumer confidence rises despite higher gas prices

ByABC News
February 28, 2012, 1:54 PM

— -- Consumer confidence rose sharply in February, a sign that fast-rising prices for gasoline aren't yet scaring U.S. consumers and taking the energy out of the economy's recovery.

The Conference Board said Tuesday that its consumer confidence index jumped to 70.8 from 61.5 in January.

Economists, who had been expecting the number to hit 63, were caught offguard. The Conference Board, a New York-based research group, said February's confidence level was the highest since the same month a year ago, when the index came in at 72.

According to the monthly survey, expectations for the economy's condition six months out reached 88, nearing the range of 90 and above that signifies a stronger recovery, Conference Board economist Ken Goldstein said. A score of 100 on the Board's index means consumers are as confident as they were in 1985.

Economists have been increasingly worried that the recent spike in gasoline prices will cut disposable income, crimping the recovery in sectors such as retailing, restaurants and other consumer services.

Prices for regular gas rose 13 cents a gallon last week to a nationwide average $3.78, the U.S. Energy Information Administration reported Monday. Gasoline pump prices are up 34 cents a gallon the past year.

"We learned that 243,000 new jobs last month make people feel better," Goldstein said in an interview after the confidence report was released. "People are grousing about prices, but the good news from the job markets trumps it."

Some economists are quick to remember the impact of higher gas prices on the economy early last year, when optimism about a recovery dissipated as regular gas spiked to $3.96 a gallon on average. It reached $4.12 a gallon in 2008, before the financial crisis hit.

Many economists argue that higher energy prices offset the stimulative effect of cutting the payroll tax at the beginning of 2011. This year, the extension of the payroll tax cut again gives consumers extra cash to pay for some of the gas price hikes.

Consumers are getting another boost because falling prices for natural gas and reduced electricity usage due to the mild winter are offsetting gasoline price increases, keeping total energy budgets close to unchanged, Deutsche Bank analyst Joseph LaVorgna wrote in a report last week.

"In 2008, the cost of natural gas and heating oil spiked at the same time" as gasoline, Goldstein said. "There's no indication that will happen this time."

Although consumer confidence is at the same level it was 12 months ago, it has dipped the past year as low as 40.9, pulled lower by a heated political debate in Washington over the risks of raising the U.S. debt ceiling, and Standard & Poor's decision to respond to the risk by lowering the federal government's AAA credit rating, for the first time in the history of Treasury bond ratings.

Consumers aren't just saying they're confident in response to a survey. Relatively optimistic consumers also boosted chain-store sales, which rose 3% the week ended Feb. 25, the International Council of Shopping Centers reported. This follows a January in which sales grew at their fastest clip since October, the Council said.

In a separate report out Tuesday, orders for long-lasting manufactured goods plunged 4% in January, biggest drop in three years, the Commerce Department said. Economists had expected a 1% drop.