Tuesday, July 31, 2007

Consumer Confidence Hits 6-Year High

By ANNE D'INNOCENZIO (AP Business Writer)

NEW YORK (AP) - Consumer confidence hit a six-year high in July, a widely watched gauge of sentiment showed on Tuesday, as Americans shrugged off falling home prices to focus on a healthy jobs market, instead.

The New York-based Conference Board said that its Consumer Confidence Index, rebounded to 112.6, its highest level since August 2001 when it recorded a 114.0 reading. That compared to a revised 105.3 in June. The July 24 cutoff for the preliminary survey of 5,000 U.S. households was before last week's stock market tumble, however.

"An improvement in business conditions and the job market has lifted consumers' spirits in July," said Lynn Franco, director of The Conference Board Consumer Research Center. "Looking ahead, consumers are more upbeat about short-term economic prospects, mainly the result of a decline in the number of pessimists, not an increase in the number of optimists. This rebound in confidence suggests economic activity may gather a little momentum in the coming months."

The Present Situation index, which measures how shoppers feel now about economic conditions, increased to 139.2 from 129.9 in June. That was the highest level since August 2001's 144.5 reading. The Expectations Index, which measures shoppers' outlook for the next six months, rose to 94.8 from 88.8.

Economists closely monitor confidence since consumer spending accounts for two-thirds of all U.S. economic activity.

The report on consumer confidence was encouraging and may help alleviate investor concerns about consumer spending amid a softening housing market that shows no sign of improvement. There have been also worries that high gasoline prices will continue to eat into consumers' ability to spend for other things. While prices at the pump have declined recently, they are still higher than a year ago and are expected to tick up after the Labor Day weekend.

"It is encouraging in light of high energy prices, volatility of the stock market and the weak housing market that consumers didn't flinch," said Mark Vitner, senior economist with Wachovia Securities in Charlotte, N.C. "My general sense is that the economy is finding its footing."

On Tuesday, Standard & Poor's reported that its home prices index fell for a fifth consecutive month in May, marking the gauge's steepest drop in about 16 years.

Last week, the Commerce Department said that sales of single-family homes fell 6.6 percent in June, the fifth decline in the last six months and the largest drop since January. The National Association of Realtors reported last week that sales of existing homes fell by 3.8 percent in June to the slowest level in nearly five years.

Concern about the housing market and jitters about the lending environment led to a stock market tumble late last week, though the market clawed back some territory this week as investors focused on the good news such as strong earnings reports. The Standard & Poor's 500 index gained 2.63, or 0.18 percent, at 1,476.54 in trading Tuesday.

The Commerce Department allayed some inflation fears Tuesday when it reported that year-over-year core personal consumption expenditures increased 1.9 percent. That rate is within the Federal Reserve's comfort zone.

Investors seemed to ignore Tuesday's report from the Commerce Department that personal spending rose 0.1 percent, its slowest pace in nine months.

A healthy outlook for jobs has been helping consumers. The Labor Department is expected to show an increase in 135,000 jobs in July when it reports monthly figures on Friday. The unemployment rate is projected to be steady at 4.5 percent.

In the Conference Board report, consumers were more upbeat about the job market than the prior month. Those saying that jobs are "hard to get" declined to 18.4 percent from 20.5 percent. Those claiming jobs are "plentiful" improved to 30.5 percent from 27.6 percent in June.

The six-month outlook for the labor market continued to be mixed. Consumers expecting more jobs in the months ahead was unchanged at 14.1 percent, while those anticipating fewer jobs decreased to 15.1 percent from 17.0 percent. The proportion of consumers expecting their incomes to increase in the months ahead declined to 18.8 percent from 19.4 percent in June.

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