Nov. Consumer Sentiment Posts Unexpected Rise

U.S. consumer sentiment posted an unexpected surge in early November as a rebound in sickly U.S. stocks helped Americans shrug off mounting job cuts and deteriorating economic conditions since Sept. 11.

The University of Michigan's preliminary November consumer sentiment index rose to 83.5 from 82.7 in October — in sharp contrast to the Conference Board's October numbers, which showed consumer confidence still falling.

Economists and policymakers closely watch consumer confidence, mostly on a downward trend since late last year, because it is closely linked to consumer spending, which underpins about two-thirds of U.S. economic activity.

No Immediate Impact on Markets

Many analysts, however, urged caution in the face of the Michigan data. The survey is a preliminary sampling of only 250 people, which will be revised later this month, and the index is less influenced by the immediate impact of job losses than is the Conference Board gauge.

"The Michigan results do not guarantee anything but are certainly consistent with the widely held view that the economy will turn around relatively quickly, perhaps by the spring of 2002,'' said Stephen Stanley, an economist at Greenwich Capital Markets in Greenwich, Conn.

Financial markets Friday mostly shrugged off the Michigan data, which was much stronger than expected for the second straight month. Economists had expected the index would fall to 78.7 in November. They also forecast a decline in October, but the index also rose in that month.

The current conditions index, which gauges Americans' views on their present financial situation, rose to 94.9 in November from 94.0 in October. And the expectations index, which tracks consumers' attitudes about the coming year, edged up to 76.2 in November from 75.5 in October.

While the Michigan survey has shown surprising resilience in the face of a contracting economy, a war in Afghanistan and bioterrorism in the United States, the head of the survey last month warned that the index may worsen.

Richard Curtin, director of the survey, called the October level "recessionary'' and said he expected the index to fall in the months ahead.

But some economists were more optimistic about how a stabilization in consumer sentiment would impact retail sales in the upcoming holiday period.

"These (Michigan) numbers look good. In combination with the producer prices report earlier this morning, it's good news for consumers,'' said Oscar Gonzalez, economist at John Hancock Financial Services in Boston. ``We're more likely to see more spending in the holiday season with the rise in confidence.''

The government reported the biggest one-month fall in the Producer Price Index on record. Analysts said the October data indicated any risk of inflation had disappeared for the next few quarters.

The preliminary consumer sentiment survey is based on telephone interviews with 250 Americans across the country on personal finances, business conditions and buying conditions. The survey is updated later in the month. The survey, conducted since 1946, is released directly to subscribers.

The Conference Board survey is conducted through a mailing of questionnaires to about 5,000 U.S. households. Economists generally agree the Conference Board survey is more sensitive to trends in the labor market.

"The Conference Board measure is more sensitive to current economic developments and probably better captures consumers' views about the present and immediate future,'' Stanley said.

Reuters contributed to this report.