Economic pickup gives US confidence a welcome boost

ON THE UP?:Investors are celebrating buoyant reports on consumer confidence and housing prices, which suggest that US growth could accelerate this year


Thu, May 30, 2013 - Page 15

Home prices are surging. Job growth is strengthening. And stocks are setting record highs.

All of which explains why US citizens are more hopeful about the economy than at any other point in five years.

Consider Michael Quintos, head of a Chicago advertising agency that helps small businesses market themselves through social media. Quintos sees more optimism at work and among friends and relatives.

“A year ago, I had more friends asking me if I knew anybody who was hiring,” he says. “Now I have more people who are hiring asking me if I know anyone looking for a job.”

At work, Quintos is finding it easier to land customers. In the past few months, businesses that have asked about his services have been more likely to follow through and hire him. A year ago, most were wary.

“I’ve had more work than I can handle,” Quintos says. As a result, he hired a Web designer last week.

Investors on Tuesday celebrated the latest buoyant reports on consumer confidence and housing prices, which together suggest that growth could accelerate in the second half of this year.

A report from the Conference Board, a private research group, showed that consumer confidence jumped this month to a reading of 76.2, up from 69 last month. That is the highest level since February 2008, two months after the Great Recession officially began.

A separate report showed that US home prices jumped nearly 11 percent in March compared with a year ago, the sharpest 12-month increase since April 2006. Prices rose year-on-year in all 20 cities in the Standard & Poor’s/Case-Shiller home price index.

The economic news helped send the Dow Jones Industrial Average up 106 points to close at a record. The Dow has rocketed nearly 18 percent this year. And the Standard & Poor’s 500 Index is on track for its seventh straight monthly gain, the longest winning streak since 2009.

Surging stock prices and steady home-price increases have allowed Americans to regain the US$16 trillion in wealth they lost to the Great Recession.

Higher wealth tends to embolden people to spend more. Some economists have said the increase in home prices alone could boost consumer spending enough to offset a Social Security tax increase that has reduced paychecks for most Americans this year.

The Conference Board survey said consumers are also more optimistic about the next six months. That should translate into greater consumer spending, substantial growth in hiring and faster economic growth in the second half of this year, says Thomas Feltmate, an economist with TD Economics.

The board’s survey found that optimism is growing mostly among those earning more than the median household income of roughly US$50,000. For those households, the confidence index jumped to 95.1 from 85.3.

Consumers’ outlook on the job market also improved last month. The percentage who said jobs are plentiful rose, and the percentage who said they are hard to find declined. Economists say the shift suggests that the pace of hiring could pick up.

The economy has added an average of 208,000 jobs a month since November last year. That is well above the monthly average of 138,000 during the previous six months. The job growth has helped reduce the unemployment rate to a four-year low of 7.5 percent.

The economy grew at an annual rate of 2.5 percent in the January to March quarter, up from a rate of just 0.4 percent in the October to December quarter last year. The fastest expansion in consumer spending in more than two years drove the economy’s growth.

Many economists think growth is slowing slightly in the current quarter to an annual rate between 2 percent and 2.5 percent. However, plenty of analysts say growth should strengthen in the second half of the year, boosted by the gains in housing and employment.

One potential obstacle to further economic gains is that workers’ pay is rising only modestly. Without faster growth in pay, some consumers may be reluctant to keep spending more.