Consumer confidence, housing looking up

May 27, 2003 12:00 PM

Two key economic indicators—consumer confidence and housing sales—bear positive economic news.

Today, The Conference Board announced its Consumer Confidence Index posted a “moderate” increase in May, building on the sharp increase registered in April. And two recent reports show the housing market is also strong.

The Consumer Confidence Index, regarded as an important economic bellwether, now stands at 83.8, which is up from April’s showing of 81.0. The Expectations component of the Index also rose, climbing from 84.8 to 94.4. However, the Present Situation component fell from 75.2 to 67.9.

The consumer survey is based on a representative sample of 5,000 U.S. households. The cutoff date for May’s preliminary results was May 20th.

“The post-war euphoria experienced last month has quickly given way and consumers’ focus has returned to matters on the home front,” stated Lynn Franco, director of The Conference Board’s Consumer Research Center. “Labor market conditions continue to be of concern, but consumers anticipate a turnaround in the coming months. While the overall Index improved moderately, the decline in the Present Situation Index suggests consumers will continue spending at current levels.”

Franco noted that consumers' assessment of current conditions was less favorable than last month. Those rating present business conditions as “bad” increased from 23.9 to 28.4%. Those rating conditions as “good” remained virtually unchanged at 16.1 percent.

Views of labor market conditions also deteriorated. Consumers reporting jobs are “hard to get” climbed from 29.4 to 32.6% while those claiming “jobs are plentiful” slipped from 13.0 to 12.6%.

But consumers’ short-term expectations posted another significant improvement. Consumers anticipating an improvement in business conditions over the next six months increased from 18.9 to 22.8% while those anticipating conditions to worsen fell from 12.3 to just to 9.7%.

The employment outlook was also more favorable. Consumers anticipating more jobs to become available increased from 16.4 to 17.8% while those expecting fewer jobs dropped from 20.9 to 17.6%. Finally, the proportion of consumers anticipating an increase in their incomes slipped just a bit from 17.2 to 17.0%.

The Consumer Confidence Index is closely watched because consumer spending, which accounts for two-thirds of all U.S. economic activity, is widely perceived as having kept the economy going since the recession that began in 2000.

There is also solid housing news. The U.S. Commerce Department has said that sales of new single-family homes increased by 1.7% from March to April to a seasonally adjusted annual rate of 1.03 million—marking the best performance since December.

And the National Association of Realtors (NAR) trade group has reported that sales of existing homes jumped by 5.6% in April to a rate of 5.84 million. These reports together show the housing market remains a strong contributor to the economy.

"Consumer confidence rose following the swift action in Iraq, mortgage interest rates have been at record lows and new-home sales rose sharply in March," noted David Lereah, NAR chief economist. "The favorable conditions in April caused existing-home sales to rise to their fifth-best showing ever – a pace that will be difficult to sustain but demonstrates that the housing sector will be close to a record this year."