Consumer confidence ended a three-month plunge in November with substantial improvements from previous months due to declines in gas prices, according to the University of Michigan’s Survey of Consumers.

“The recent rise in consumer confidence was due to declines in gas prices,” according to

Although gas prices have fallen to their lowest level since June, the November gain reversed just one-third of the losses recorded in the prior three months. “The recent gain in confidence will support somewhat improved holiday sales, with current dollar retail sales gains of about 5 1/2 percent over last year,” said Richard Curtin, director of the University of Michigan’s Surveys of Consumers.

The Index of Consumer Sentiment was 81.6 in the November 2005 survey, up from 74.2 in October, but still below the 96.5 recorded in July and the 92.8 recorded in November 2004.

The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 69.6 in the November 2005 survey, up from 63.2 in October, but remaining well below the 85.5 recorded in July or the 85.2 recorded in November 2004.

According to Curtin, “A tipping point was reached in August, as consumers suddenly adopted a more cautious and uncertain economic outlook.” While the surge in gas prices was the proximate cause, the mere reversal of those price hikes will not restore optimism to its former level. “The economic circumstances that consumers once found acceptable are now viewed with trepidation,” Curtin said.

What was seen as resilient and adaptive behavior, consumers now view as providing less economic flexibility to face new challenges, including record indebtedness, a negative saving rate, and their past reliance on cash-out refinancing, he added. “In the face of high and volatile energy costs, weaker job growth, and an emerging slowdown in the housing market, consumers have adopted more cautious spending plans,” Curtin noted.

“The recent decline in gas prices prompted consumers to substantially lower the inflation rate they expect for the year ahead, reversing nearly the entire increase recorded during the prior two months,” Curtin said. Consumers expected an inflation rate of 3.3 percent during the year ahead in the November survey, down from 4.6 percent in October, the largest one-month drop since just after Sept. 11, 2001.

Nearly all of the positive impact on personal finances from declining gas prices was reported by households with incomes above $50,000, as households with lower incomes still reported widespread financial distress and anticipated little improvement in their finances during the year ahead.

“Lower income households more frequently complained that rising gas prices had diminished their living standards,” Curtin noted. There is still widespread concerns about their future financial situation among all households, as one-third of higher-income households expected declines in their inflation-adjusted incomes, and one-half of lower-income households expected declines in their incomes after adjustment for inflation.

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