Things generally seem a bit brighter during the holidays, and this year the season’s cheer seems to be extending even to the economy. Consumer sentiment rose strongly in December, according to a preliminary reading of the Thomson Reuters/University of Michigan Consumer Sentiment Index, a monthly survey of at least 500 American households. The index gained 3.6 points for the month to reach a reading of 67.7, from 64.1 in November.

December was the fourth consecutive month to register index gains, and the improvement was more dramatic than economists had predicted. In a survey of 73 economists conducted by Bloomberg News, the median estimate for what the monthly reading would be was 65.8.

However, the rise came on a tide of optimism about the future, rather than perceptions of current improvements. While the index gauging current economic conditions increased only 0.3 points, to 77.9, the index measuring expectations for conditions six months from now improved 5.7 points for the month, to 61.1.

While the index’s levels are still relatively low (in the five years leading up to the recent recession, which began in December 2007, the index averaged a reading of 89), the improvement is a good sign, says Chris Christopher, senior principal economist at IHS Global Insight. "People are feeling better, and there are a few reasons," he said on a call with Builder today. "Real disposable income [adjusted for inflation] has turned around. … Every month in the third quarter it was falling, and now it’s increasing." He also pointed to strong retail sales and lower unemployment. "There are indicators that things are all right. All this is despite higher poverty rates and higher inequality. It’s a mixed result, but the retailers are still surviving."

Source: Builderonline.com