Confidence at Five-Year High as U.S. Housing Climbs: Economy

Consumer confidence climbed to the highest level in more than five years and home prices advanced by the most in seven as the housing rebound gives the U.S. economy a lift.

The Conference Board’s sentiment index rose to 76.2 in May, exceeding all estimates in a Bloomberg survey of economists and the highest since February 2008, data from the New York-based private research group showed today. The S&P/Case-Shiller index of property values in 20 cities increased 10.9 percent in the year to March, the biggest 12-month gain since April 2006.

Rising property and stock values are boosting household finances, helping Americans cope with an increase in the payroll tax and wage gains that have barely kept up with inflation. Stocks climbed as the reports underpinned the outlook for consumer spending and earnings at companies ranging from retailers such as Williams-Sonoma Inc. to homebuilders including PulteGroup Inc.

“We’re getting back on track,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, the top-ranked forecaster of Case-Shiller data over the past two years, according to data compiled by Bloomberg. “Housing continues to look very solid in a broad-based manner. We’re continuing to expand.”

The Standard & Poor’s 500 Index rose 0.6 percent to 1,660.06 at the close in New York. The S&P Supercomposite Retailing Index also climbed 0.6 percent. Treasuries fell, sending the yield on the benchmark 10-year note up to 2.17 percent, a one-year high.

Survey Results

The median estimate in a Bloomberg survey projected the consumer confidence index would rise to 71.2. Forecasts of the 75 economists polled ranged from 65 to 76. The April reading was revised up to 69 from a previously reported 68.1 in April. The measure averaged 53.7 in the recession that ended in June 2009.

The Conference Board’s gauge of consumer present conditions advanced to 66.7 in May, the highest since May 2008. The measure of expectations for the next six months jumped to 82.4, the highest since October.

Today’s report showed 40 percent of those surveyed expected stocks to increase in the coming year, the biggest share since May 2007.

The share of consumers expecting more jobs to open in the next six months increased to a five-month high.

“Back-to-back monthly gains suggest that consumer confidence is on the mend and may be regaining the traction it lost due to the fiscal cliff, payroll-tax hike, and sequester,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement.

Other Measures

Today’s figures fell in line with other measures. The Bloomberg Consumer Comfort Index climbed to a five-year high in the week ended April 28. The Thomson Reuters/University of Michigan preliminary consumer sentiment gauge for May posted its strongest reading since July 2007, a report showed last week.

Further gains in confidence may help bolster consumer spending after a projected slowdown this quarter. Household purchases are forecast to increase at an average 2.3 percent annualized pace in the last two quarters of the year after climbing at a 1.8 percent rate from April through June, according to a Bloomberg survey of economists this month.

Spending in the first quarter increased at a 3.2 percent annualized rate, the biggest gain since the end of 2010, Commerce Department figures showed April 26. The rise added 2.24 percentage points to economic growth of 2.5 percent.

National Data

Today’s Case-Shiller data also included quarterly figures for the market nationally. Prices covering all of the U.S. climbed 10.2 percent in the first quarter from the same period in 2012, the strongest year-to-year advance since the first quarter of 2006.

Los Angeles; Seattle; Charlotte, North Carolina; Portland, Oregon; and Tampa, Florida, in March had their biggest month-to-month gains in more than seven years.

“We have a continued, gradual recovery,” said Brian Jones, a senior U.S. economist for Societe Generale in New York, who projected a 10.6 percent increase, the highest forecast in the Bloomberg survey. “The data is solid.”

The increase in household wealth associated with the gains in home and stock prices will help boost consumer spending and offset at least a third of the 1.5 percentage-point hit to the economy from the fiscal tightening brought on by government budget cuts and the increase in the payroll tax, according to Ian Shepherdson, chief economist and founder of Pantheon Macroeconomic Advisors Inc. in White Plains, New York.

Improving Sales

The housing recovery is giving consumers more confidence to spend, said Laura Alber, president and chief executive officer of Williams-Sonoma. The San Francisco-based company reported an 8.6 percent increase in net revenue in the three months ended May 5.

“We’re not sure whether there’s truly a housing recovery that’s going to be sustainable yet, but we are seeing that they are spending money to redecorate,” Alber said on a May 23 earnings call. “Whether they’re moving or not, it’s time to get some new stuff in your home after a period when I think people didn’t feel comfortable spending money on their homes.”

Bigger gains in employment and wages are needed to fuel stronger spending. The unemployment rate was 7.5 percent in April, a four-year low, and the economy added 165,000 jobs, according to figures from the Labor Department.

The job market must add 200,000 or more jobs per month for at least six months before it can be considered substantially improved, Chicago Federal Reserve Bank President Charles Evans said in a speech last week. Weekly wages adjusted for inflation were up 0.5 percent on average in the year through April, according to the Labor Department.

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