Confidence among consumers soared in July to an almost seven-year high as increased employment opportunities led to brighter views of the U.S. economy.
The Conference Board’s index advanced to 90.9, the highest since October 2007, from 86.4 in June, the New York-based private research group said today. The gauge exceeded the most optimistic projection in a Bloomberg survey of 75 economists.
“Employment conditions improved, gas prices are lower, equity markets remain robust, and that’s pretty much it,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York. “The fact that confidence is rising at a fairly steady rate implies that employment growth is going to continue at a fairly healthy rate.”
More Americans than at any time in the past six years viewed jobs as abundant and a greater share anticipated their incomes will increase, laying the groundwork for a pickup in consumer spending. Progress in the labor market and other data showing limited traction in the housing market probably explain why Federal Reserve policy makers are forecast to keep interest rates low well into 2015 even as they trim monetary stimulus.
Home prices rose in the 12 months ended in May at the slowest pace in more than a year as a lull in residential real estate limited appreciation. The S&P/Case-Shiller index of property prices in 20 U.S. cities increased 9.3 percent from May 2013 after a 10.8 percent gain in the year ended in April. Compared with the prior month, home prices fell for the first time in two years, the group said today in New York.
Higher mortgage rates and strict lending standards are restraining demand, which will probably prompt sellers to lower expectations of how much they can get for their properties. According to the Conference Board’s report, the share of Americans who planned to buy a home in the next six months dropped to the lowest level since February 2013.
Overseas, housing was showing greater momentum. Mortgage approvals in the U.K. rose in June to a four-month high, the Bank of England reported today in London.
Stocks in the U.S. fell as President Barack Obama announced new sanctions against Russia. The Standard & Poor’s 500 Index dropped 0.5 percent to 1,969.95 at the close in New York.
The median projection in the Bloomberg survey called for a confidence index reading of 85.4 in July. Estimates ranged from 82.8 to 88.5 after a previously reported 85.2 in June.
The Conference Board’s gauge of present conditions rose to 88.3, the strongest reading since March 2008, from 86.3 in June. The barometer of consumer expectations for the next six months increased to 92.7, the highest since February 2011, from 86.4 a month earlier.
“Stronger job growth helped boost consumers’ assessment of current conditions, while brighter short-term outlooks for the economy and jobs, and to a lesser extent personal income, drove the gain in expectations,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement. The figures “suggest the recent strengthening in growth is likely to continue into the second half of this year.”
The share of Americans who said jobs were currently plentiful advanced to 15.9 percent in July, the highest since May 2008, from 14.6 percent. More consumers than a month earlier said they expected greater employment opportunities and better business conditions in the six months ahead.
The difference between those who said jobs were hard to get and those who said employment opportunities were plentiful was the smallest since May 2008.
Payrolls surged 288,000 in June after a 224,000 gain the prior month that was bigger than previously estimated, figures from the Labor Department showed this month. The unemployment rate dropped to an almost six-year low of 6.1 percent.
More employment opportunities will probably keep Fed policy makers on the path to reduce monetary stimulus as they begin a two-day meeting today.
The increase in sentiment didn’t translate into a pickup in buying plans. Fewer respondents in the survey said they expected to purchase cars, homes and appliances in the next six months.
Some of the headwinds consumers have faced in recent months are starting to dissipate. A gallon of unleaded gasoline at the pump fell to $3.52 yesterday, the lowest since mid-March, after a high in April of $3.70, according to data from AAA, the largest U.S. motoring group.
Food costs showed signs of stabilizing in June after surging in prior months as a drought in the West and a deadly hog virus pushed up prices for beef, pork and some vegetables and fruits. Food prices rose 0.1 percent in June after a 1.1 percent surge a month earlier, according to Labor Department figures. They were up 2.4 percent from June 2013.
Progress in the labor market is keeping O’Reilly Automotive Inc. upbeat even as the second-largest U.S. auto-parts retailer says challenges remain for some of its customers.
“We were encouraged by modest gains in miles driven, as unemployment very gradually improves,” Gregory Henslee, the Springfield, Missouri-based company’s chief executive officer, said on a July 24 earnings call. Even so, “our average consumer has been under pressure for a long time as a result of the slow recovery and we would not anticipate this pressure to significantly abate in the near term.”
(An earlier version of this story corrected the year in which Fed policy makers will keep interest rates low.)