US Consumer Confidence Improves, House Prices Rise

U.S. consumers’ rising expectations about future conditions were the main driver behind the rise in the overall consumer confidence index to 54.1 in August from July’s 47.4 (revised up from 46.6). Perceptions of consumers’ present situation rose from 23.3 to a still-subdued 24.9. Consumers’ expectations enjoyed a much stronger bounce, rising from 63.4 in July to 73.5, putting it at its highest level since December 2007.

Perceptions of labour market conditions also improved, although by a smaller margin. Those reporting ‘jobs are plentiful’ rose to 4.2 in August from 3.7 in July while respondents saying that ‘jobs are hard to get’ fell to 45.1 from 48.5.

Today’s report showing improvement in consumer confidence during August likely reflects the more upbeat economic landscape emerging in recent weeks. Job losses for July decelerated to a 247,000 decline following a 443,000 fall in the prior month as the unemployment rate eased to 9.4% in July from 9.5% in June. Activity in the housing sector improved, with existing home sales reportedly rising by 7.2% in July and house prices rising 0.75% in June. Industrial production enjoyed a boost as the cash-for-clunkers program increased demand for motor vehicles.

In its statement on August 12, the Fed noted that “economic activity is levelling out” while Bernanke stated on Friday that the prospects for a return to growth in the near-term are “good.” We expect the pick-up in economic activity in the coming months to push U.S. GDP growth to 1.3% in the third quarter and 1.8% in the final quarter of this year as fiscal and monetary stimulus take further hold.

House prices - In another report out this morning, the S&P Case Schiller measure of house prices posted gains in June. House prices rose 0.75% (on a seasonally adjusted basis) in the month. This marks the first monthly rise in house prices since May 2006. For the second quarter overall, prices were up 1.4%, marking the first quarterly rise in three years. However, on a year-on-year basis, prices in June were still down 15.4%.