Recession Easing ??

U.S. Michigan Consumer Sentiment Index Rose to 61.9

April 17 (Bloomberg) -- Confidence among U.S. consumers improved in April for a second month amid signs the longest recession in the postwar era may be easing.

The Reuters/University of Michigan preliminary index of consumer sentiment rose to 61.9, the highest since September, from 57.3 in March. The reading on expectations for six months from now improved. The index reached a three-decade low of 55.3 in November.

Recent reports indicate housing and manufacturing, two of the hardest-hit areas, may be stabilizing, supporting Federal Reserve Chairman Ben S. Bernanke's view that the U.S.'s "sharp decline" could be slowing. An improvement in confidence may help sustain a recovery in consumer spending, which accounts for 70 percent of the economy.

"The darkest phase of the recession is behind us, according to consumers," said Jonathan Basile, an economist at Credit Suisse Holdings Inc. in New York., whose prediction that the gauge would be 62 was the closest forecast in the Bloomberg survey. Still, Basile said, the April level is "very consistent with a sluggish consumer profile" and a full economic recovery is "not under foot right now."

Economists forecast the sentiment index would rise to 58.5, according to the median of 63 projections in a Bloomberg News survey. Estimates ranged from 55 to 62.9.

Expectations Gauge

U.S. stocks fell for the first time in three days as Citigroup Inc. said headwinds in credit markets are persisting even as the bank ended a five-quarter streak of losses, overshadowing the confidence report. The Standard & Poor's 500 Index fell 0.2 percent to 863.88 at 10:59 a.m. in New York. Treasuries dropped, driving up yields. The benchmark 10-year note yielded 2.9 percent, up 6 basis points from yesterday.

In the report, the expectations gauge -- which more closely predicts the direction of consumer spending -- rose to 58.9, also the highest since September, from 53.5 in March. A measure of current conditions, which reflects Americans' perceptions of their financial situation and whether it's a good time to buy expensive items such as cars, increased to 66.6 from 63.3.

"The economy is still weak but it's not declining at quite the rapid pace it was," said David Sloan, senior economist at 4Cast Inc. in New York, who had projected sentiment would reach 61, the second-closest forecast in the Bloomberg survey. "We should probably see the report as a sign people are getting a little less pessimistic, and that's the message we're getting from a number of recent indicators."

Inflation Projections

Consumers in today's report projected an inflation rate of 3 percent over the next 12 months, compared with 2 percent in the March survey.

Over the next five years, Americans expected a 2.7 percent rate of inflation, compared with the 2.6 percent forecast last month, which matched December's projection as the lowest since 2002. These figures are tracked by Fed policy makers.

The U.S. contraction slowed across several of the Fed's biggest regions last month, with some industries "stabilizing at a low level," the central bank said in its regional survey of economic activity issued April 15. Retail sales showed a "slight improvement" in some areas, and there was a "scattered pickup" in home buying, the report said.

Bernanke said the day before that the signs of stability make for a potential "first step" toward a recovery from the downturn that started in December 2007. The economy shrank at a 6.3 percent annual rate in the last three months of 2008, the worst performance since 1982.

'Economic Progress'

President Barack Obama, speaking the same day, said his $787 billion economic stimulus package as well as plans to rescue banks and reduce home foreclosures are starting to "generate signs of economic progress." Still, he said there would be "pitfalls" ahead.

Evidence that the housing market is reaching a bottom may be helping to lift Americans' spirits. The National Association of Home Builders/Wells Fargo confidence index this month rose to the highest level since October, the group said this week. The Commerce Department said yesterday that builders broke ground on 358,000 single-family homes at an annual rate in March, unchanged from the prior month.

Reports by the Philadelphia Fed and New York Fed this week showed manufacturing shrinking at a slower pace this month.

Jobless Claims

The number of Americans applying for first-time jobless benefits unexpectedly dropped last week to the lowest level in almost three months, the Labor Department said yesterday. Even so, the total number of people collecting benefits jumped to a record 6.02 million, suggesting that while companies may not be firing as many people, they're also not hiring.

Harley-Davidson Inc., the biggest U.S. motorcycle maker, said April 16 that net income dropped 37 percent in the first quarter from a year earlier and sales slid 1.2 percent. The profit figures were still better than analysts had forecast.

"We remain cautious and continue to expect 2009 to be an extremely challenging business environment," Chief Executive Officer Jim Ziemer said in a statement.

Gregory Wasson, chief executive officer of Walgreen Co., the second-largest U.S. drugstore chain, said revenue in April may rise, though consumers are selecting less-expensive products, as they look to stretch their paychecks.

"Discretionary items are definitely dropping off," Wasson said in an interview April 14. "But the nondiscretionary items such as staples, food, paper goods and so forth, we are still seeing pretty healthy increases."

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net