Home Sales, Consumer Confidence on the Rise
New reports on U.S. consumer confidence and home sales issued Tuesday show the nation’s economy remains vibrant and could be picking up speed after a brief respite.
The latest reports supported a cautionary tone adopted by Federal Reserve Chairman Alan Greenspan, who told Congress on Tuesday he is leaving open the possibility of more interest rate hikes.
Sales of existing homes rose 2.8% in June to a seasonally adjusted annual rate of 5.23 million units, from 5.09 million units in May, the National Assn. of Realtors said. The June figure was the highest since August 1999.
Separately, the Conference Board, a private research firm, said its consumer confidence index rose to 141.7 in July from 139.2, indicating Americans are still feeling upbeat about the economy even after six Federal Reserve interest rate hikes in the last 13 months.
Both numbers exceeded market expectations. If coming key economic reports confirm that growth is again picking up, it will increase the chances of another Fed rate hike Aug. 22.
“The message of today’s data is the signs of a slowdown in the second quarter may be a little exaggerated, and the indicators are that the economy will regain momentum,” said David Sloan, senior economist at 4Cast Ltd., an economic consulting firm in New York.
The data had little impact on stock or bond markets that were focused mainly on Greenspan, who was reporting to the House Banking Committee on the economy and U.S. monetary policy.
Greenspan, who testified before a Senate panel last week, stuck to his upbeat assessment of the economy, saying growth was moderating and inflationary imbalances appeared to be receding. But he cautioned that the signs of slowing are still tentative.
“We will know more, I presume, by the time of our next meeting,” Greenspan told lawmakers.
“At that particular point we will make a judgment as to whether or not further action--or no action--is the most appropriate policy for the purpose of creating a more balanced economy with the capacity to continue this quite extraordinary 112-month expansion.”
The consumer holds the key to the Fed’s efforts to slow the economy, and an acceleration in spending would almost surely increase the likelihood of additional interest rate hikes.
The Fed’s credit-tightening campaign has centered on concerns that consumer demand is outpacing supply in the economy, threatening to fuel inflation.
Tuesday’s figures show “that the consumer is not worried about a slowdown. In June, economic numbers were mixed after being consistently weak, and we are looking for July to be stronger,” said Goldman Sachs economist Jan Hatzius.
The consumer confidence index is a closely watched gauge of future economic activity, and July’s reading was higher than the 139.3 predicted by economists in a Reuters poll.
The Conference Board said consumers’ assessment of both current and future conditions brightened in July. The “present situation” index jumped to 185.9 in July from 180.1 in June, while the outlook for conditions six months from now rose to 112.2 from 111.9.
“Consumer confidence readings continue to indicate a strong overall economy,” said Lynn Franco, director of the Conference Board’s Consumer Research Center.
But figures on consumer spending are still mixed, and a report on weekly chain-store sales issued Tuesday painted a picture of weakening demand. Chain-store sales fell 0.1% in the week ended July 22 versus the previous week, Bank of Tokyo-Mitsubishi reported.
June existing-home sales came in higher than the 5.02-million unit rate forecast by Wall Street economists.
Analysts had expected higher interest rates over the last year to slow the housing sector, and had projected sales to drop to 5.0 million from May’s 5.09-million rate. Thirty-year fixed-rate mortgages now top 8%.
“Even with the high level of interest rates we’ve been experiencing this year, affordability remains pretty good,” said NAR President Dennis Cromk.
However, David Lereah, NAR’s chief economist, said he expected home sales to trend downward.
“Although we may see some month-to-month fluctuations in both interest rates and home sales, we expect the overall level of sales to gradually decline. Existing-home sales should be down more than 9.0% from last year’s record, but will still end the year at fairly high levels in historic terms.”
Sales rose in most U.S. regions--9.8% in the Northeast, 6.0% in the West and 1.0% in the South. However, sales fell 1.7% in the Midwest.
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Consumer Confidence
From a monthly survey of 5,000 U.S. households.
Index: 1985=100.
*
July:
141.7
*
Source: Conference Board
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Existing-Home Sales
Seasonally adjusted annual rate, in millions of units:
June: 5.23 million
