WASHINGTON — Despite looming tax increases and budget cuts, Americans felt better about the economy this month than at any time in the past five years with more households reporting their income had risen, according to a leading barometer of consumer confidence released Friday.
The consumer sentiment index from Thomson Reuters and the University of Michigan rose to 82.6 for October, up 5.5 points from last month.
A preliminary October reading two weeks ago was slightly higher, at 83.1. But the final figure for the month still was a sharp improvement from September and was the highest month-end reading since September 2007.
“The very positive economic expectations of consumers stand in sharp contrast to growing concerns expressed by investors and companies about the impending fiscal cliff as well as the impact of a slowing global economy,” said Richard Curtin, the survey’s chief economist.
He said the added confidence should help boost spending in the crucial holiday season, but also means there could be a big fall-off if Congress and the White House don’t stop the big tax increases and government spending cuts known as the fiscal cliff.
But the October reading might mean consumers believe the issue will be resolved after the Nov. 6 presidential election between President Barack Obama and Republican Mitt Romney.
“The surge in consumer optimism may be largely due to the implied election promises of both candidates that most of the Bush tax cuts and the payroll tax cuts will be promptly extended,” Curtin said.
Friday’s reading came as the government reported the economy grew at a 2 percent annual rate in the three months ending Sept. 30, slightly higher than analyst expectations. Consumer spending was a key factor in the improvement in economic output, compared with the weak 1.3 percent growth in the second quarter.
In the consumer sentiment report, people gave more favorable readings on their current financial situation than at any time in the past five years. And for the first time since November 2008, half of the households surveyed said they expected their annual incomes to increase in the coming year – though not by much.
Consumers also were more optimistic about the nation’s job market. Less than 20 percent said they expected the unemployment rate to increase in the next 12 months, the most favorable outlook since 1984.
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