The Michigan survey’s index of current conditions, which assesses how Americans perceive their financial situation and whether they think it is a good time to buy expensive items like cars, rose to 88 from a six-month low of 85 in January.
The index of consumer expectations for six months from now, which more closely projects the direction of consumer spending, advanced to 68.7 from 66.6 last month.
Inflation Expectations
Consumers in today’s preliminary confidence report said they expect an inflation rate of 3.3 percent over the next 12 months, the same as in January. Over the next five years, Americans expected a 3 percent rate of inflation, compared with 2.9 percent in the previous month.
Americans are benefiting from rising house values as low mortgage rates drive the recovery in housing. Prices for single- family homes climbed in about 88 percent of U.S. cities in the fourth quarter, the National Association of Realtors said in a report earlier this week.
Stocks are also making households wealthier. The S&P 500 climbed 5 percent in January, its biggest increase for the month since 1997. The benchmark has extended the gain this month.
Improvements in the labor market are another reason for optimism. The economy added 157,000 jobs in January after a revised 196,000 gain in December and a 247,000 surge in November. Firings are starting to wane as well. Initial jobless claims decreased by 27,000 last week, the most in a month, Labor Department data showed.
Payroll Tax
At the same time, Americans face some headwinds that threaten to restrain consumer spending. Congress and President Barack Obama allowed the payroll tax to return to its 2010 level of 6.2 percent from 4.2 percent. An American who earns $50,000 is taking home about $83 less a month because of the levy.
Trips to the gas station are becoming more expensive as well. The average price of a gallon of gasoline has climbed about 42 cents since last year’s low of $3.22, reached on Dec. 19, according to AAA, the nation’s largest motoring organization.