Consumer confidence index surges in December

December 27, 2011 6:52:41 PM PST
Two key barometers of the economy give mixed messages about the future. One says consumer confidence is growing, while the other shows home prices continue to fall.

The country's economic engine isn't operating on all cylinders yet, but instead of coasting, we may be seeing some forward motion as a result of consumers feeling better about spending money.

The crowds just before Christmas displayed a new consumer confidence.

"I feel like there were bigger crowds and a lot more people out than the last couple of years. It feels like things are looking up a little bit," said Jimmy Herren of Los Altos.

And that optimism is reflected in the latest consumer confidence index. It was 64.5 this month, up 9 points from a month earlier when it was 55.2. Seeing people walk around with shopping bags and buying, not just looking, rubs off.

Kit Yarrow, Ph.D., is a consumer psychologist at Golden Gate University's Ageno School of Business. She talked to us via Apple FaceTime at an electronics store.

"Certainly some of this increased confidence has to do with crowd mentality, that people feel like other people are feeling more positively, and that makes them feel more positively," said Yarrow.

The real test of consumer confidence will come in the weeks and months ahead as credit card bills roll in and income tax time approaches.

"I feel like January's the time when people have their New Year's resolutions. They're starting their diets and going back to the gym and might not think they're going to eat cupcakes a lot in January. Hopefully we can change that," said Andrea Parks from the Frost Cupcake Factory.

Parks is the proprietor of Frost Cupcake Factory in Downtown Campbell. She's confident enough to keep her four full-time and four part-time employees. However, as home prices continue to slide, that can drag down consumer spending. The benchmark Case-Shiller Index says Bay Area home prices went down 0.7 percent in October compared to a year ago, in which home prices had fallen 4.7 percent.

"Seeing the prices go down and down and watch our house value drop..." said Kathryn Class of San Jose. She was asked when she sees that happen, if it makes her feel less confident about spending money and she replied, "Oh, yeah, definitely."

Another factor that can impact spending is job security. While the private sector has already been hard hit, many public sector jobs are still in jeopardy.

"I work in education, and with the budget the way it is, I don't know if my job's safe. I'd like to think it is, but you just never know," said Liz Garcia of Campbell.

The consumer confidence that retailers are seeing may in time influence the deep discounts that they're giving of 50 to 60 percent. That's a reminder that stronger consumer confidence may also raise retailer confidence.

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