US consumer confidence at its highest for 16 months; house price inflation rises

  • The consumer confidence index rises to 127.3 in June
  • The measure of household employment is skyrocketing
  • House prices accelerate year-on-year in April

WASHINGTON, June 29 (Reuters) – U.S. consumer confidence peaked in nearly a year and a half in June, with growing job market optimism amid a reopening economy offsetting concerns regarding rising inflation.

Tuesday’s Conference Board survey also showed a healthy appetite for sustainable manufactures such as motor vehicles and home appliances, suggesting strong momentum in the economy at the end of the second quarter.

Consumers were also eager to buy homes, a sign that home prices will continue to rise rapidly as supply lags. Many were planning to go on vacation, mostly to the United States, over the next six months, which should boost demand for services and fuel consumer spending.

“Consumers have much to celebrate after being locked in their homes for over a year,” said Oren Klachkin, chief US economist at Oxford Economics in New York. “Looking ahead, low COVID infections, a rebound in employment and high savings will boost confidence and push consumers to spend at breakneck speed over the summer.”

The Conference Board’s Consumer Confidence Index hit 127.3 this month, the highest level since February 2020, from 120.0 in May. Economists polled by Reuters had forecast an index at 119.0.

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

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

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

Stocks on Wall Street rose, with the S&P 500 hitting an all-time high for the fourth consecutive session. The dollar appreciated against a basket of currencies. US Treasury prices were lower.

STRONG VIEWS ON THE LABOR MARKET

The Conference Board’s so-called labor market differential, derived from data on respondents’ opinions about whether jobs are plentiful or hard to come by, climbed to 43.5 in June. It was the highest level since 2000 and was up from 36.9 in May.

This measure is closely correlated with the unemployment rate in the Ministry of Labor’s closely watched employment report. The jump in the so-called labor market differential bodes well for the June jobs report due for release on Friday. There is a record 9.3 million vacancies.

A customer pushes her cart through the aisles of a Walmart store in the Porter Ranch neighborhood of Los Angeles, November 26, 2013. REUTERS / Kevork Djansezian

“That could point to a million new non-farm payroll jobs in Friday’s report if the consumer is right,” said Chris Rupkey, chief economist at FWDBONDS in New York City.

According to a Reuters survey of economists, non-farm payrolls likely increased by 690,000 jobs in June after increasing by 559,000 in May. The unemployment rate is expected to fall to 5.7% from 5.8%. Although job growth has resumed, a shortage of volunteer workers is frustrating companies’ efforts to increase recruitment.

The worker shortage has been blamed on generous unemployment benefits, including a $ 300 weekly subsidy from the federal government. A lack of daycare, because some centers closed during the pandemic have never reopened, also keeps some parents at home.

At least 26 states are ending federally funded unemployment benefits before the September 6 expiration date. This, along with school districts that are expected to resume in-person classes in the fall, are expanding the workforce.

This month, more consumers expected to purchase homes, cars and major appliances in the next six months, compared to May. This suggests that demand for so-called durable goods will remain strong even as spending returns to services such as air travel, restaurants and hotel accommodation.

Economists are forecasting another double-digit increase in consumer spending this quarter, which should lead to the economy growing at an annualized rate of around 10%. Gross domestic product grew at a pace of 6.4% in the first quarter.

Accelerating home prices are holding back sales, which will likely limit the housing market’s contribution to GDP growth this quarter. Housing demand is driven by historically low mortgage rates and the shift to home offices during the pandemic. Other sectors of the economy are also experiencing shortages and high prices due to bottlenecks in the supply chain.

A separate report released on Tuesday showed that the S & P / Case Shiller composite index of 20 metropolitan areas accelerated 14.9% year-on-year in April, the largest gain since December 2005. This followed an increase by 13.4% in March.

The surge in house price inflation was corroborated by another report showing that the Federal Housing Finance Agency’s (FHFA) house price index hit a record 15.7% in April by compared to a year ago after rising 14.0% in March.

Economists don’t think another real estate bubble is developing, as the surge is mainly due to a mismatch between supply and demand, rather than bad lending practices, which sparked the 2008 global financial crisis.

“We are often asked if we are in a real estate bubble, but we are not necessarily,” said Jordan van Rijn, senior economist at the Credit Union National Association.

“There are structural factors at play, such as a lower supply of existing homes, a shortage of materials and labor, and a higher cost of materials.”

Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci

Our standards: Thomson Reuters Trust Principles.

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