Data Point to More Rate Hikes
Consumer confidence rose in June, and sales of previously owned homes fell less than expected in May, providing signs that the economy remains resilient and that the Federal Reserve might need to tighten credit policy more.
A widely watched barometer of consumer confidence improved slightly in June after declining in May, a New York-based private research group said Tuesday. And sales of existing homes in May fell for the third time in the last five months, although the numbers indicate the housing market is headed for a soft landing, not a collapse.
“These reports are signs that the economy does have resilience, but it is not a Superman economy, and it does have some weaknesses,” said Stuart Hoffman, chief economist at PNC Financial Services Group. “The economy is still flying but at a lower altitude.”
The data played into market fears that the Federal Reserve would raise a key interest rate this week and could raise it again when it meets in August. The Fed is expected to lift the rate by a quarter-percentage point to 5.25% at its two-day meeting starting today as part of its campaign to combat inflation.
The New York-based Conference Board said its confidence index rose to a better-than-expected reading of 105.7 from a revised 104.7 in May. Analysts had expected 103.9.
Consumer confidence has been a bit choppy this year after a rebound since November in the aftermath of last year’s Gulf of Mexico hurricanes. In addition to May, February also saw a decline in consumer sentiment when short-lived pessimism over the job market hurt confidence.
“The slight bounce-back in confidence this month was a result of the moderate improvement in consumers’ expectations,” said Lynn Franco, director of the Conference Board Consumer Research Center.
Still, she noted, “despite the uptick, consumers remain concerned about the short-term outlook.”
The board’s present situation index, which measures how shoppers feel now about economic conditions, declined to 132.7 from 134.1. The expectations index, which measures consumers’ outlook over the next six months, edged up to 87.6 from 85.1.
Hoffman believes that the recent stock market declines and sluggishness in the job market may have soured consumers’ views of the economy, and that a leveling off of energy prices in recent weeks may have helped lift consumer optimism about the economy’s future.
Hoffman warned that if energy costs surged in the summer or fall, it might force companies to cut costs by reducing hiring.
Meanwhile, Tuesday’s report on declining sales of existing homes reconfirmed beliefs that the economy was moderating but remained strong.
The National Assn. of Realtors reported that sales of previously owned homes declined 1.2% in May to a seasonally adjusted annual rate of 6.67 million units.
The weakness was led by a big drop in demand in the Northeast.
Analysts had expected a drop of 2.1%.
The report said the median price of the homes sold in May rose to $230,000 in May, up 6% from the same month a year ago. That reflected a slowdown from big double-digit price gains last year at the peak of the housing boom. The median price is the point at which half of the homes sold for more and half for less.
