Consumer, business confidence improving

In the Investor’s Business Daily/TIPP Economic Optimism Index, consumer confidence hit a 16-month high in January, as the economy added jobs in December and a comprehensive bill that included an extension of unemployment benefits through 2011 and a two-year extension of the 2001 and 2003 tax cuts lifted Americans’ outlook.

“Americans have been cheered up by the shift in control of Congress,” said Terry Jones, associate editor of Investor’s Business Daily. “Clearly, they expect big changes in fiscal policy in Washington that could diminish future spending and deficits, and return the U.S. economy to a solid growth path.”

Business leaders’ assessment of current economic conditions was more favorable than in the third quarter. 

Fifty-six percent say conditions are better compared to six months ago, up from 32 percent in the third quarter. In assessing their own industries, business leaders were also positive. In the final three months of the year, nearly 55 percent say conditions have improved, compared with 38 percent in the previous quarter.

Their short-term outlook is also much more optimistic. Currently, 56 percent of business leaders anticipate an improvement in economic conditions over the next six months, up from 22 percent last quarter. Expectations for their own industries are also more positive, with nearly 51 percent of CEOs expecting conditions to improve in the months ahead, up from 28 percent last quarter. 

A component of that improvement could be linked to the White House’s outreach to the nation’s top chief executives last month, when President Obama held a meeting seeking to forge a partnership and accelerate the pace of the economic recovery. 

Into 2011, business confidence could get another boost behind Obama’s selection of William Daley as his new chief of staff, who is considered friendly to business. 

Also, the head of the U.S. Chamber of Commerce, a group that is regularly critical of the White House’s policies, said Tuesday that the economy has improved in the past two years although the recovery is still slow and job creation hasn’t picked up enough pace to make a dent in the unemployment rate, which has been stuck above 9 percent for 20 months. 

Chamber President Tom Donohue predicted that the economy would expand by 3.2 percent in 2011, creating between 2.4 million and 2.6 million jobs. Growth of that size could lead to a roughly 1 percent drop in the unemployment rate.

If that’s the case, consumers outlooks are likely to continue their rise. 

In the ABC News index, the overall consumer-comfort index reading was -40 on its scale of -100 to +100, five points improved from its -45 reading the prior week. The average for the index since late 1985 is -14, and it peaked at +38 in January 2000.

ABC noted that a five-point increase in the March 1993 index signaled the end of the 1990-1991 recession.

The ABC index measures typical Americans’ confidence in three areas: the national economy, their finances and their willingness to spend money, according to the report. 

The Investor’s Business Daily/TIPP Economic Optimism Index increased 6.1 percentage points in January to 51.9. The reading is 5.2 points above the 12-month average and 7.5 points above the December 2007 reading, when the recession started.

The six-month economic outlook also showed improvement.