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Consumers feeling confident

| Wednesday, Feb. 23, 2011

NEW YORK -- Americans are feeling more chipper about the economy than they have in three years.

The Consumer Confidence Index rose to 70.4 this month, up from 64.8 in January, as Americans expressed more optimism about their income prospects and the direction the economy is headed, a private research group reported Tuesday.

It's the strongest reading since the early days of the most severe recession the United States has seen since the 1930s.

A robust stock market and falling unemployment are lifting Americans' spirits in spite of rising food and energy prices and a still-weak housing sector. In addition, a cut to the Social Security tax meant Americans started seeing more money in their paychecks in January, which may be boosting consumer spending.

Retailers including Macy's Inc., Home Depot Inc. and VF Corp., maker of Lee jeans and Vans shoes, reported better-than-expected earnings. Home Depot posted its first annual revenue increase since before the housing crash in 2006, while Macy's, the country's second-largest department store chain, saw sales at stores open at least a year climb 4.3 percent.

"Since November there has been a gradual improvement in the consumer mood, but it's not happy days are here again," says Chris Christopher, an economist with IHS Global Insight. "Household net worth is still about $10 trillion below its peak, and with what's going on in the housing market now, it doesn't look like that's going to improve anytime soon."

The S&P/Case-Shiller index of home values in 20 U.S. cities fell 2.4 percent last year, the group said Tuesday, and economists predict foreclosures will increase this year.

The Conference Board, which puts out the confidence survey, found that the number of families planning to buy a home in the next six months fell to 4.4 percent in February from 5.2 percent in January.

While consumer confidence is rising, continued troubles in the housing market and other lingering effects of the recession are keeping the index well below the 90-plus readings that signal a stable economy. Confidence fell off a cliff after the U.S. housing bubble burst and the financial crisis took hold in 2007.

The index dropped below 90 in January 2008 and hit an all-time low of 25.3 a year later. While confidence and spending have inched back up as business conditions improve, Americans are still feeling cautious, especially when it comes to jobs.

While Americans' assessment of current business conditions "remains rather weak," the Consumer Confidence Index is at a three-year high "due to growing optimism about the short-term future," says Lynn Franco, director of the Conference Board Consumer Research Center.

"We expect to see significant improvements in confidence over the course of this year," said Scott Hoyt, senior director of consumer economics for Moody's Analytics.

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