A two-percentage-point cut in payroll taxes this year, part of the compromise reached by President Barack Obama and Congressional Republicans, is trickling into consumers’ bank accounts. The extra cash and an improving job market are helping cushion the pinch from the biggest one-week jump in gasoline prices since the aftermath of Hurricane Katrina in 2005.
“Many people are just starting to notice the increase in their paychecks due to the tax cut,” said Joseph Brusuelas, a senior economist at Bloomberg LP in New York. “It’s coming at the right time.” Nonetheless, he said, confidence will be tested in coming weeks should fuel costs climb further.
Stocks rose as an unexpected drop in jobless claims bolstered confidence the labor market is improving. The Standard & Poor’s 500 Index gained 1.1 percent to 1,323.17 at 9:35 a.m. in New York. Treasury securities dropped, pushing the yield on the benchmark 10-Year Treasury note up to 3.52 percent from 3.47 percent late yesterday.
Payrolls rose by 195,000 workers in February, the biggest advance since May, after a 36,000 gain the previous month, according to the median forecast of economists surveyed before a Labor Department report tomorrow. The acceleration in hiring reflects a pickup in growth and a rebound from the weather- depressed January level, economists said.
The comfort reading for week ended Feb. 20 was the highest since April 2008.
The comfort index of personal finances rose to 2.4 last week, the highest since May 2009, from minus 2.3. Fifty-one percent of those polled held positive views on their financial situation, up from 49 percent the previous week and the first time since January 2010 that the reading topped 50 percent.
A gauge of Americans’ views of the economy fell to minus 70.6 last week from minus 69.4. The share of households with a positive view of the economy held at 15 percent for a second week, matching the highest since September 2008.
An index of the buying climate fell to minus 50.9 from minus 47.1. Those people saying it was a good time to buy needed items dropped to 25 percent from 27 percent the previous week.
J.C. Penney Co., Kohl’s Corp. and Ross Stores Inc. were among retailers today reporting February same-store sales that topped analysts’ estimates. Purchases at stores open at least a year climbed 6.4 percent at J.C. Penney, 5 percent at Kohl’s and 3 percent at Ross, company data showed.
“We are encouraged by our solid start to the year,” Michael Balmuth, chief executive officer of Pleasanton, California-based discounter Ross Stores, said in a statement. Even so, “the much more important March/April holiday selling period is still ahead.”
The average price of regular gasoline at the pump jumped 20 cents to $3.37 a gallon in the week ended Feb. 27, according to AAA, the nation’s biggest motoring organization. It was the biggest increase since the period ended Sept. 5, 2005, after Katrina slammed into New Orleans.
“The key question is what lies ahead for prices at the pump,” Gary Langer, president of Langer Research Associates LLC in New York, which compiles the index for Bloomberg, said in a statement. “A long run-up will do far more damage than a short spurt.”
Federal Reserve Chairman Ben S. Bernanke echoed that view in testimony before Congress this week.
“Sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability, particularly if they were to cause inflation expectations to become less well anchored,” Bernanke told legislators in his semiannual comments on monetary policy.
Gasoline prices and the comfort index have shown a strong inverse correlation since 2004, according to calculations by Bloomberg’s Brusuelas. Additionally, changes in the four-week average of claims for jobless benefits have been in sync with the comfort gauge about 72 percent of the time.
Another report showed claims unexpectedly declined last week to the lowest level since May 2008. Applications decreased by 20,000 to 368,000 in the week ended Feb. 26, according to the Labor Department. Economists forecast claims would climb to 395,000, according to the median estimate in a Bloomberg survey.
Renters, who have less at stake as home prices fall, were among the categories in the comfort survey that showed the most improvement last week, according to today’s report. Their outlook gauge rose to minus 40.7 last week, the highest since March 2008.
The Bloomberg Consumer Comfort Index is based on responses to telephone interviews with a random sample of 1,000 consumers aged 18 and over.
Each week, 250 respondents are asked for their views on the economy, personal finances and buying climate; the percentage of negative responses is subtracted from the share of positive views and divided by three.
The comfort index can range from 100, indicating every participant in the survey had a positive response to all three components, to minus 100, signaling all views were negative. The margin of error for the headline reading is 3 percentage points.
The responses are broken down by participants’ sex, age, income level, race, region of residence, political affiliation, marital and employment status.
Readings of minus 40 for the index, which is based on a four-week average, have historically been the threshold indicating Americans think a recovery from recession has begun, said Langer.