US consumer confidence rises; house prices accelerate

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. consumer confidence rose in November after three straight monthly declines, with Americans planning big-ticket purchases like motor vehicles and houses over the next six months even as they continued to fret over higher prices and interest rates.

Despite the rebound in morale reported by the Conference Board on Tuesday, about two-thirds of consumers surveyed this month still perceived a recession to be “somewhat” or “very likely” to happen over the next year.

Recent inflation-friendly data, including a moderation in job gains, bolster financial market expectations that the Federal Reserve was probably done raising interest rates this cycle. Most economists are, however, not forecasting a recession, but rather a period of very slow growth.

“Overall, this data supports the idea of slower growth at the moment but the prospect of continued growth into next year,” said Brad McMillan, chief investment officer at Commonwealth Financial Network in Waltham, Massachusetts.

The Conference Board said its consumer confidence index increased to 102.0 this month from a downwardly revised 99.1 in October. Economists polled by Reuters had forecast the index dipping to 101.0.

The improvement in confidence was concentrated mostly among households aged 55 and up. Consumers in the 35-54 age group were less optimistic about their prospects.

The survey’s present situation index, based on consumers’ assessment of current business and labor market conditions, edged down to 138.2 from 138.6 in October. Its expectations index, based on consumers’ short-term outlook for income, business and labor market conditions, rose to 77.8 from 72.7. It remains below 80, a level historically associated with a recession within the next year.

“General improvements were seen across the spectrum of income groups,” said Dana Peterson, chief economist at the Conference Board. “Nonetheless, write-in responses revealed consumers remain preoccupied with rising prices in general, followed by war/conflicts and higher interest rates.”

INFLATION EXPECTATIONS EASE

Consumers’ 12-month inflation expectations fell to 5.7% from 5.9% in October. This likely reflects news this month that inflation pressures subsided in October. The cooling inflation backdrop has left financial markets anticipating a rate cut in the middle of 2024, according to CME Group’s (NASDAQ:) FedWatch Tool. Since March 2022, the Fed has hiked its policy rate by 525 basis points to the current 5.25%-5.50% range.

Amid signs that inflation was abating, consumers appeared more keen to step up spending over the next six months. The survey showed an increase in the share of consumers intending to buy motor vehicles and major household appliances like refrigerators, washing machines and televisions sets.

While there is no strong correlation between confidence and consumer spending, the rise in buying intentions suggests that consumers should continue to underpin the economy.

Consumer spending remains supported by a resilient labor market. Though job growth has moderated, labor market conditions remain fairly tight by historical norms.

The Conference Board’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, widened slightly to 23.9 this month from 23.8 in October.

This measure correlates to the unemployment rate in the Labor Department’s closely followed employment report.

The survey also showed more consumers planned to buy a house over the next six months. They, however, could run into challenges as mortgage rates remain elevated and an acute shortage of properties for sale boost home prices.

A second report from the Federal Housing Finance Agency on Tuesday showed annual home price growth accelerated again in September, largely reflecting the dearth of previously owned houses. House prices surged 6.1% on a year-on-year basis in September after rising 5.8% in August. Prices increased a solid 0.6% month-on-month after advancing 0.7% in August.

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