The U.S. consumer confidence index unexpectedly rose to a 16-month high of 55.9 in January from a revised 53.6 in December, the Conference Board announced Tuesday.A Bloomberg News economists' survey had expected the index to rise to 53.5 in January. The index was at 50.6 in November, and hit a record low of 25.3 in February 2009. (Base year, 1985=100.)

Meanwhile, the present situation index increased to 25.0 in January from 20.2 in December, and the expectations index rose to 76.5 from 75.9 last month.

A More Positive View

Lynn Franco, director of the Conference Board's Consumer Research Center, said the confidence index reflects consumers' better view of present-day conditions. "Consumer confidence rose for the third consecutive month, primarily the result of an improvement in present-day conditions. Consumers' short-term outlook, while moderately more positive, does not suggest any significant pickup in activity in the coming months," Franco said, in a statement. "Regarding their financial situation, while consumers were less dire about their income prospects than in December, the number of pessimists continues to outnumber the optimists."

In addition, consumers' assessment of current conditions was slightly more favorable in January. Those claiming business conditions are "bad" increased slightly to 46.1% in January from 45.1% in December, while those claiming business conditions are "'good" increased to 9.0% from 7.5%.

Also, consumers' assessment of the job market was slightly more favorable compared to last month. Those saying jobs are "hard to get" decreased to 47.4% in January from 48.1% in December, while those claiming jobs are "plentiful" increased to 4.3% from 3.1%.

Consumers' short-term expectations were somewhat mixed in January, the Board said. Consumers expecting business conditions to improve over the next six months decreased slightly to 20.9% in January from 21.2% in December, while those expecting conditions to worsen increased to 12.7% from 11.8%. However, those expecting fewer jobs dropped to 18.9% from 20.6%. Finally, those expecting more jobs to become available in the months ahead declined to 15.5% from 16.4%.

Investors should pay attention to the Consumer Confidence Index because, historically, consumer spending has accounted for about 60% to 65% of U.S. GDP. Moreover, rises in consumer confidence are directly correlated with increases in consumer spending. Hence, if confidence rises, and a trend forms, that most likely means good things are ahead for corporate revenue and earnings.

Economic Analysis

The key take-a-ways from the January consumer confidence report concern the larger-than-expected increase in the top-line confidence stat, and the nearly year-long uptrend. Both are bullish signs for the U.S. economy and the stock market, and a larger theme is also evident: Consumers are becoming more confident, but there's one dimension of the economy that has prevented the index from recording even more impressive gains -- concern about the lack of new jobs and the nation's high unemployment rate.

Bottom Line: The American people will need to see tangible signs of sustained job growth, with rising, real incomes, to keep consumer confidence heading higher.

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