"A rise in US consumer confidence to its highest level in six months and a much bigger-than-expected contraction in the country's trade deficit pointed to a firmer economic recovery on Friday. The boost in consumer confidence on the back of an improving jobs outlook was another indication consumers are willing to spend over the holidays while a rise in exports looks set to lift economic growth this quarter.
The data fits into a pattern of an economy that is gaining traction after a slowdown in the summer and is likely to intensify the debate over whether the Federal Reserve needs to keep stimulating the economy through asset purchases. "We are in the gradual recovery camp and are definitely on the upper side of that now," said Pierre Ellis, senior global economist at Decision Economics in New York. "It adds to a growing number of economic indicators that are looking better-than-expected."
Consumer sentiment in December rose to its highest level since June and was at its third-highest since the start of 2008 according to a Thomson Reuters/University of Michigan survey. Government data showed US exports in October rose a robust 3.2 percent while imports declined slightly. The survey's preliminary December reading for consumer sentiment came in at 74.2, up from 71.6 in November. That was above the median forecast of 72.5 among economists polled by Reuters.
Although the unemployment rate edged up to 9.8 percent in November, new claims for unemployment benefits fell more than expected last week and the four-week moving average slipped to a fresh two-year low. The sentiment survey's barometer of current economic conditions rose to its highest reading since January 2008, just after the economic downturn began. The index for December came in at 85.7, up from 82.1 in November and above a forecast of 83.1.
Meanwhile, the US trade deficit for October totalled $38.7 billion, down from a revised estimate of $44.6 billion for September. Analysts surveyed before the report had expected the deficit to narrow just slightly to about $43.60 billion. Record exports to China and Mexico in October helped push the overall export tally to $158.7 billion, the highest since August 2008. Exports to the European Union and Japan also grew.
Despite record exports to China in October, the US trade deficit with that country in the first 10 months of 2010 was $226.8 billion, up 20.3 percent from the year-earlier period. The sharp rise is likely to keep China's trade and currency policies on the minds of US lawmakers in 2011.
The smaller-than-expected trade deficit could boost estimates for US fourth-quarter economic growth because it implies a larger share of US demand is being met by domestic production. On an annual basis, the trade deficit has widened sharply this year and could surpass $500 billion when final figures for 2010 are available. Last year, in the midst of the global financial crisis which put a squeeze on world trade, the US trade gap narrowed about 46 percent to $374.9 billion.
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