SAWT BEIRUT INTERNATIONAL

| 25 May 2024, Saturday |

U.S. consumer confidence near 1-1/2-year high; house prices accelerate

In June, consumer confidence in the United States reached its best level in nearly two years, as rising labor market optimism and a recovering economy countered concerns about rising inflation.

The Conference Board’s survey released on Tuesday revealed a strong desire to purchase products such as automobiles and home appliances, indicating that the economy was still moving in the right direction as the second quarter came to a close.

Consumers were likewise eager to buy homes, indicating that while supply lags, housing prices will continue to rise significantly. Many people planned to go on vacation in the next six months, especially in the United States, which could raise demand for services and fuel consumer spending.

“Consumer attitudes are likely to benefit from the ongoing reopening and a better health backdrop going forward that will support job growth and incomes,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.

The Conference Board’s consumer confidence index raced to a reading of 127.3 this month, the highest level since February 2020, from 120.0 in May. Economists polled by Reuters had forecast the index at 119.0.

The survey places more emphasis on the labor market, which is steadily recovering. More than 150 million Americans have been fully vaccinated against the coronavirus, allowing for broader economic re-engagement.

The survey’s present situation measure, based on consumers’ assessment of current business and labor market conditions, increased to 157.7 from 148.7 last month. The expectations index, based on consumers’ short-term outlook for income, business and labor market conditions, rose to 107.0 from 100.9.

Consumers’ inflation expectations over the next 12 months rose to 6.7% from 6.5% last month.

STRONG LABOR MARKET VIEWS

The Conference Board survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, vaulted to 43.5 in June. That was the highest level since 2000 and was up from 36.9 in May.

This measure closely correlates to the unemployment rate in the Labor Department’s closely watched employment report. The jump in the so-called labor market differential augurs well for June’s employment report due out on Friday. There are a record 9.3 million job openings.

Though job growth has picked up, a shortage of willing workers is frustrating companies’ efforts to ramp up hiring. The worker shortage has been blamed on generous unemployment benefits, including a weekly $300 subsidy from the federal government. A lack of child care facilities as some centers which shut during the pandemic never reopened, is also keeping some parents home.

At least 26 states are terminating federal government-funded unemployment benefits before the Sept. 6 expiration date. This, together with school districts expected to resume in-person classes in the fall, is seen expanding the labor pool.

In comparison to May, more customers intended to purchase homes, vehicles, and major household appliances in the next six months this month. This means that even as spending turns back to services like air travel, dining out, and hotel accommodations, demand for so-called durable products will remain high.

House price inflation is being fueled by strong demand for homes and a lack of available properties on the market.

According to a separate study released on Tuesday, the S&P/Case Shiller composite index of 20 metropolitan regions rose 14.9 percent year over year in April, the most since December 2005. This comes after a 13.4% gain in March.

Stocks on Wall Street were trading mostly higher. The dollar rose against a basket of currencies. U.S. Treasury prices fell.

Soaring house price inflation was corroborated by another report showing the Federal Housing Finance Agency (FHFA) house price index shot up a record 15.7% in April from a year ago after rising 14.0% in March.

The FHFA’s index is based on the purchase prices of homes funded with mortgages sold to or guaranteed by Fannie Mae and Freddie Mac, two mortgage finance companies. Mortgage rates are at an all-time low, which is fueling house demand.

Economists do not believe a new housing bubble is forming, pointing out that the spike is primarily driven by a supply-demand mismatch, rather than the irresponsible lending practices that precipitated the global financial crisis in 2008. However, quickly growing costs may contribute to inflation.

“Despite the rise in house price expectations, we don’t believe a self-reinforcing bubble will arise, and we don’t expect values to tumble,” said Sam Hall, a Capital Economics property economist. “Rather, we believe that by the end of the year, higher mortgage rates and stretched affordability will have slowed home price rise to roughly 7% year-over-year.”

    Source:
  • Reuters