Americans feeling better about economic recovery

AP Photo
AP Photo/Mark Lennihan

NEW YORK (AP) — Americans are feeling better about the economy again, but will it last this time?

A widely watched barometer of consumer confidence surged in February to its highest level in a year as Americans took note of improving job prospects among friends and family and falling unemployment, which is now at a three-year low.

The brighter assessment released Tuesday by a private research group reflected a more upbeat attitude for the nation generally as the economy picks up. That is a boon for President Obama as he seeks re-election. Polls, including a recent Associated Press-GfK survey, show the Democratic incumbent is beginning to benefit politically from improved views of the economy.

“The economy is getting momentum. Clearly, shoppers are more optimistic about their job prospects,” said Amna Asaf, economist at Capital Economics.

The rising confidence among consumers gave confidence to Wall Street, too, helping it to reclaim the last of the ground it held before plunging into the depths of the Great Recession. The Dow Jones industrial average closed above 13,000 on Tuesday for the first time since May 19, 2008, four months before the fall of Lehman Brothers investment bank and the worst of the financial crisis.

Jack Ablin, chief investment officer at Harris Private Bank, called it “a momentous day for investor confidence.”

Tuesday’s gain puts the Dow 1,160 points below its all-time high, set Oct. 9, 2007. The Great Recession began two months later.

The milestone could draw some fence-sitting investors back into the market and add to the gains, said Brian Gendreau, market strategist at Cetera Financial Group.

But consumer confidence is still below the level of a healthy economy, and trouble could lie ahead. Rising gas prices could sully shoppers’ mood and derail the economic recovery. There are also fears about a nuclear showdown with Iran and the festering European debt crisis. Those worries could hurt demand for U.S. imports and make American companies pull back in hiring.

The confidence index is closely watched because consumer spending constitutes 70 percent of U.S. economic activity.

The big question mark is the price of gasoline, which Asaf said has climbed 20 cents per gallon since the confidence survey concluded two weeks ago.

The price of gas is a big issue because it has an immediate effect on shoppers’ pocketbooks, particularly low- to middle-income households that are already squeezed by higher costs for basics such as food.

The average U.S. price of a gallon of gasoline was $3.69, according to the Lundberg Survey of fuel prices released Sunday.

The Conference Board’s Consumer Confidence Index now stands at 70.8, significantly higher than the expected 63. A reading of 90 or above indicates a healthy economy. But the index has not reached that level since December 2007, when the recession began.

Still, Tuesday’s numbers were closer to levels that indicate a stable economy than to the danger zone that would suggest trouble.