By Lucia Mutikani
WASHINGTON (Reuters) – U.S. consumer confidence jumped to its highest level in nearly 1-1/2 years in June as growing labor market optimism amid a reopening economy offset concerns about higher inflation.
The survey from the Conference Board on Tuesday also showed strong appetite to buy goods such as motor vehicles and household appliances, suggesting strong momentum in the economy as the second quarter ended.
Consumers were also keen to purchase homes, a sign that house prices will continue to rapidly increase as supply lags. Many intended to go on vacation, mostly in the United States, over the next six months, which should boost demand for services and add fuel to consumer spending.
“Consumer attitudes are likely to benefit from the ongoing reopening and a better health backdrop going forward that will support job growth and incomes,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York.
The Conference Board’s consumer confidence index raced to a reading of 127.3 this month, the highest level since February 2020, from 120.0 in May. Economists polled by Reuters had forecast the index at 119.0.
The survey places more emphasis on the labor market, which is steadily recovering. More than 150 million Americans have been fully vaccinated against the coronavirus, allowing for broader economic re-engagement.
The survey’s present situation measure, based on consumers’ assessment of current business and labor market conditions, increased to 157.7 from 148.7 last month. The expectations index, based on consumers’ short-term outlook for income, business and labor market conditions, rose to 107.0 from 100.9.
Consumers’ inflation expectations over the next 12 months rose to 6.7% from 6.5% last month.
Stocks on Wall Street were trading mostly higher. The dollar rose against a basket of currencies. U.S. Treasury prices fell.
Graphic: Consumer confidence – https://graphics.reuters.com/USA-STOCKS/xegvbzmgnvq/consconf.png
STRONG LABOR MARKET VIEWS
The Conference Board survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, vaulted to 43.5 in June. That was the highest level since 2000 and was up from 36.9 in May.
This measure closely correlates to the unemployment rate in the Labor Department’s closely watched employment report. The jump in the so-called labor market differential augurs well for June’s employment report due out on Friday. There are a record 9.3 million job openings.
Though job growth has picked up, a shortage of willing workers is frustrating companies’ efforts to ramp up hiring. The worker shortage has been blamed on generous unemployment benefits, including a weekly $300 subsidy from the federal government. A lack of child care facilities as some centers which shut during the pandemic never reopened, is also keeping some parents home.
At least 26 states are terminating federal government-funded unemployment benefits before the Sept. 6 expiration date. This, together with school districts expected to resume in-person classes in the fall, is seen expanding the labor pool.
This month, more consumers planned to buy homes, cars and major household appliances over the next six months, relative to May. That suggests demand for so-called durable goods will remain strong even as spending shifts backs to services such as air travel, dining out and hotel accommodation.
Strong demand for homes amid a dearth of properties on the market is fueling house price inflation.
A separate report on Tuesday showed the S&P/Case Shiller composite index of 20 metropolitan areas accelerated 14.9% year-on-year in April, the largest gain since December 2005. That followed a 13.4% increase in March.
Graphic: Case Shiller – https://graphics.reuters.com/USA-STOCKS/xlbpgqodkpq/caseshiller.png
Soaring house price inflation was corroborated by another report showing the Federal Housing Finance Agency (FHFA) house price index shot up a record 15.7% in April from a year ago after rising 14.0% in March.
The FHFA’s index is calculated by using purchase prices of houses financed with mortgages sold to or guaranteed by mortgage finance companies Fannie Mae and Freddie Mac (OTC:). Demand for housing is being driven by historically low mortgage rates.
Economists do not believe another housing bubble is developing, noting that the surge is being mostly driven by a mismatch between supply and demand, rather than poor lending practices, which triggered the 2008 global financial crisis. But the rapidly rising prices could feed inflation.
“Despite the pick-up in house price expectations, we don’t think a self-reinforcing bubble will form, nor do we expect values will crash,” said Sam Hall, a property economist at Capital Economics. “Rather, we think rising mortgage rates and stretched affordability will cool house price growth to around 7% year-on-year by the end of the year.”
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