Consumer sentiment is at the highest level seen in five years as U.S. citizens are feeling more upbeat about the economy. GDP also grew at a faster pace than expected in the third quarter which is also helping to part the clouds a bit after the financial crisis although the jobs market remains soft.
"The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment rose to 82.6 from 78.3 in September. It was at its highest level since September 2007 on a final reading basis," Leah Schnurr wrote on Reuters. Economists were expecting a reading of 83. Furthermore, there are a number of households that are experiencing rising income.
"While the surge in confidence will act to bolster consumer spending during the upcoming holiday season, it also means that this higher level of confidence is more vulnerable to reversal and has thus raised the stakes for post-election economic policies," Richard Curtin said.
The upcoming spending cuts and tax increases are still looming dark spots and anything can happen after the Presidential election. Implied election promises could be bolstering this confidence, as Bush era tax cuts and payroll tax cuts could be extended.
Last week's GDP reading came as the government reported the economy grew at a 2% annual rate in the three months ending Sept. 30, slightly higher than analyst expectations, reports Jim Puzzanghera for The LA Times. Also encouraging, consumers are more optimistic about the U.S. job market, as less than 20% of those surveyed did not expect the unemployment rate to increase in the next year.
Some consumer-related ETFs include Consumer Discretionary Select Sector SPDR (NYSEARCA:XLY), Market Vectors Retail (NYSEARCA:RTH), Vanguard Consumer Discretionary (NYSEARCA:VCR), First Trust Consumer Discretionary (NYSEARCA:FXD) and Consumer Staples Select Sector SPDR (NYSEARCA:XLP).
The U.S. economy's better-than-expected growth in the third quarter was partly driven by robust consumer spending, Zacks reports. "Consumer spending in fact accounted for most of the increase in GDP, as the purchases by U.S. residents of goods and services increased 2.1% in the third quarter, compared with 1.0% increase in the second quarter," it said.
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Tisha Guerrero contributed to this article.
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