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US Consumer Confidence Hits 7-Year High: Conference Board

H.S. Borji
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US consumer confidence advanced for a fourth consecutive month, as improving business conditions and strong employment growth boosted consumers’ assessment of the current climate.

The Conference Board’s monthly gauge of consumer confidence increased in August to 92.4 from 90.3. Economists forecast a slight dip to 89. The August reading was the highest since October 2007.

“Consumer confidence increased for the fourth consecutive month as improving business conditions and robust job growth helped boost consumers’ spirits,” said Conference Board director of economic indicators Lynn Franco in a statement. “Looking ahead, consumers were marginally less optimistic about the short-term outlook compared to July, primarily due to concerns about their earnings. Overall, however, they remain quite positive about the short-term outlooks for the economy and labor market.”

The barometer of present conditions surged to 94.6 from 87.9. More respondents indicated that business conditions are “good” in August as compared to the previous month, while those indicating business conditions are “bad” declined.

Consumers were also more upbeat about the labour market. In total, 18.2 percent of respondents indicated jobs are “plentiful,” compared to 15.6 percent the previous month.

Respondents were less upbeat about the short-term outlook. Fewer consumers anticipate more jobs in the next six months and even fewer expected their incomes to grow. Only 15.5 percent of respondents indicated they expect their earnings to grow in the next six months, down from 17.7 percent in July.

On Friday Reuters and the University of Michigan will post a separate indicator of consumer confidence. The consumer sentiment index is forecast to decline to 80.2 from 81.8.

Consumer confidence has strengthened in recent months in response to an improving labour market. Employers added 209,000 nonfarm payrolls in July, which marked the sixth consecutive month job growth eclipsed the 200,000 mark. The unemployment rate edged up slightly to 6.2 percent as more people participated in the labour force.

The US economy has added an average of 230,000 jobs per month this year. However, labour force participation remains at multi-decade lows and wage growth continues to trend well below the historical average.

In July the participation rate was 65.9 percent. Average hourly earnings increased 2 percent annually that month, well below the long-run average of 3.5 percent. Economists are concerned that persistently low wage growth could dampen consumer spending and keep housing activity subdued for a prolonged period.

On Monday the Commerce Department said new home sales declined unexpectedly in July, tempering expectations the housing market was recovering at the start of the third quarter.

New home sales declined 2.4 percent to a seasonally adjusted annual rate of 412,000, as declining affordability continued to strain home buying. Weak earnings growth is part of the affordability challenge, as house prices are appreciating at a faster rate than wages. Mortgage rates, which hare still at historical lows, are higher than they were a year ago.

House prices have moderated in recent months, which has allowed homebuyers to tap into the previously-owned housing market. The Standard & Poor’s/Case-Shiller index of house values in 20 US cities increased at an annual rate of 8.1 percent in June, following a 9.3 percent advance the previous month.

Separately, the government’s housing price index, which measures price changes of US homes, increased 0.4 percent in June.

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