Confidence Up: Consumers Not as Fearful of Gas Prices in April

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Perhaps rising gas prices won't derail the recovery after all. After taking a dive in March, consumer confidence increased slightly in April, according to the Conference Board. Its index rose to 65.4 from 63.8 in March. This is pretty good news, as sinking sentiment could have dampened the already slow recovery.

Here's the chart, for some history from since the recession began:

consumer confidence 2011-04.png

You can see that confidence is back up to about where it was in January. For a less choppy version of the data, here's the same chart, but with a trailing three-month average:

consumer confidence 2011-04 3moavg.png

From this perspective, it appears that the index has hit a fairly stable level at around 67. But for it to stay there, it will have to continue to rise in May.

There's additional good news: the Conference Board's other two measures of sentiment also increased in April. Its Present Situation Index rose a little, to 39.6 from 37.5. Similarly, its Expectations Index increased a bit, to 82.6 from 81.3. In other words, all arrows point towards consumers feeling a little better about the U.S. economy in April than they did in March.

Lynn Franco, Director of The Conference Board Consumer Research Center, explains the reason for the stronger sentiment:

Consumer confidence, which had declined sharply in March, posted a modest gain in April. Consumers' short-term outlook improved slightly, suggesting that the uncertainty expressed last month is easing. Inflation expectations, which had spiked, retreated somewhat in April. Although confidence remains weak, consumers' assessment of current conditions gained ground for the seventh straight month, a sign that the economic recovery continues.

And that last comment is an important one to keep in mind. Confidence fell in March entirely due to a huge decline in the Expectations Index. That was caused by uncertainty over rising gas prices making consumers fearful about the future. Although those prices remain very high, consumers appear less worried that expensive oil will slow hiring and overall economic activity.

Seeing consumer confidence rebound, even slightly, should come as a relief. In a slow recovery like this one, consumer sentiment becomes something of a self-fulfilling prophecy. Hiring has been slow because consumer demand has been weak. As it strengthens, and spending rises, more aggressive hiring will follow. But if confidence falls consistently, then hiring would slow even further.

Today's news suggests reason for cautious optimism. At this time, confidence does not appear to be on a downward spiral, but just took a sharp jab in March in response to rising gas prices. Still, we need to see how the economy fares over the next few months to know for sure if confidence is stable or rising.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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