Consumer Confidence Index in U.S. Increases to 81.5

Consumer confidence unexpectedly improved in August as Americans grew more optimistic about employment opportunities and the outlook for the economy.

The Conference Board’s index of sentiment advanced to 81.5 from a revised 81 the prior month that was stronger than initially estimated, the New York-based private research group said today. The median forecast in a Bloomberg survey of economists was 79. Another report showed home prices appreciated in June at the second-fastest pace in seven years.

Higher property values and stock-market returns are boosting income expectations that will help sustain consumer spending. Well-to-do households accounted for the pickup in sentiment this month, showing bigger job and wage gains are needed for a broader expansion that benefits all income groups.

“Income expectations are finally starting to show some strength,” said Michael Brown, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We’re starting to see job growth, and consumers are feeling a little bit better about their prospects. We’re a little more optimistic about the prospects for consumer spending.”

While 67.9 percent of respondents said they expected interest rates to rise further, that was down from a seven-year high of 71 percent in July. Higher borrowing costs were reflected in the Thomson Reuters/University of Michigan preliminary sentiment reading for this month as deteriorating home-buying conditions pushed the gauge down from July’s six-year high.

Mortgage Rates

The average rate on a 30-year mortgage climbed last week to a two-year high of 4.58 percent, according to data from Freddie Mac. The rate fell in November to a record low of 3.31 percent.

Today’s report showed fewer Americans -- 5.1 percent -- said they planned to buy a house in the next six months. The drop from 6.9 percent in July was the biggest since record-keeping began in 1970.

A report today from S&P/Case-Shiller shows the momentum in home prices was starting to cool in June. The group’s index of property values in 20 U.S. cities rose 12.1 percent from June 2012 after a 12.2 percent year-over-year gain in May that was the biggest since March 2006.

Mortgage Rates

The “rate of growth of home prices is certainly slowing, but we’re still posting respectable year-over-year increases,” said Brian Jones, a senior U.S. economist at Societe Generale in New York and the top-ranked forecaster for the home-price index over the past two years, according to data compiled by Bloomberg. “Housing’s in good shape. We’re always going to keep one eye on mortgage rates to see if there is an appreciable impact going forward.”

Stocks declined the most since June and oil surged to an 18-month high amid concern the U.S. will take military action against Syria. The Standard & Poor’s 500 Index dropped 1.6 percent, the most since June 20, to 1,630.48 at the close in New York. Crude jumped 2.9 percent to $109.01 a barrel.

Elsewhere, German business confidence rose in August to the highest level in 16 months, indicating the recovery in Europe’s largest economy is gathering momentum.

In China, industrial-profit growth rebounded in July, adding to signs the world’s second-biggest economy is stabilizing after a two-quarter slowdown.

Estimates for U.S. consumer confidence ranged from 74.3 to 82 in the Bloomberg survey of 71 economists after an initial July reading of 80.3. The measure averaged 53.7 during the recession that ended in June 2009. The cutoff date for the Conference Board’s survey was Aug. 15.

Wealthier Americans

The data showed the gains in confidence occurred among wealthier Americans, with sentiment jumping for those with incomes of $100,000 or more. Sentiment decreased among households earning less than $25,000 a year.

The Conference Board’s measure of expectations for the next six months rose to 88.7 from 86. The share of Americans seeing better business conditions climbed, and more respondents expected jobs to become more available in the next six months. The percent of who said incomes would increase in the next six months advanced to the highest since February 2011.

The gauge of present conditions decreased to 70.7 this month from 73.6 in July. The share of those who say jobs are currently hard to get fell to the lowest since September 2008. The difference in the shares of those saying employment opportunities are currently plentiful and people indicating positions are hard to get was the narrowest since September 2008.

Earnings Prospects

“Consumers were moderately more upbeat about business, job and earning prospects,” Lynn Franco, director of economic indicators at the Conference Board, said in a statement. “Income expectations, which had declined sharply earlier this year with the payroll tax hike, have rebounded to their highest level in 2 1/2 years.”

While the labor market continues to improve, gains have been slow and uneven. Employers added 162,000 workers to their payrolls in July, the fewest in four months, the Labor Department reported earlier this month. Employment climbed by 197,500 a month on average in the first six months of this year, up from 180,000 in the second half of 2012.

Americans are still spending on big-ticket items such as appliances and cars even as they cut back on other purchases. Lowe’s Cos. and Home Depot Inc. reported stronger second-quarter results as shoppers, boosted by the housing recovery, snapped up home-improvement merchandise such as dishwashers, bathtubs and tile.

Customers Challenged

For retailers selling clothes and other general merchandise, the story is different. Wal-Mart Stores Inc., Target Corp., Foot Locker Inc. and some other merchants report that customers remain challenged financially and are spending cautiously.

“We continue to approach the economic and competitive environment with longer-term optimism but near-term caution,” said Kathee Tesija, executive vice president at Target, a discount retailer based in Minneapolis, Minnesota.

“While overall consumer confidence statistics have improved this year, it’s notable that optimism among lower-income households is lagging behind,” Tesija said on an Aug. 21 earnings call. “This year’s payroll tax increase and consumer spending on autos and housing are crowding out spending on other goods and services.”

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