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Thu, May 29, 2003 - Page 12 News List

US consumer confidence, housing market stay strong

PILLARS OF STRENGTH Some analysts say that the rosy outlook for the two most important parts of the US economy is indicative of resurging market conditions

AFP , WASHINGTON

Hopes for a second-half US economic rebound got a lift Tuesday from reports showing a robust housing market and a modest increase in consumer confidence.

The Conference Board said its consumer confidence index edged up to 83.8 from 81.0 last month. Although this was below some expectations on Wall Street, it was the highest level since November.

Two other reports showed housing remained a pillar of strength for the US economy.

The Commerce Department said sales of new homes rose 1.7 percent last month to an annualized pace of 1.028 million units, the highest level since December of last year.

A separate survey released by the National Association of Realtors showed existing home sales rose 5.6 percent last month to a seasonally adjusted annual rate of 5.84 million units.

Wall Street rallied on the news, which fueled hopes of a strong recovery for the sputtering US economy by the second half of the year. The Dow industrials surged 2.09 percent and the Nasdaq 3.09 percent at the close of trade.

"The market definitely rose on the confidence data and new homes sales," said Art Hogan, chief market strategist at Jefferies and Co.

"Two of the most important parts of the economy -- confidence and the real estate market -- are holding up," he said.

Housing strength was attributed to the lowest interest rates in a generation, encouraging people to put more of their cash into real estate.

"Record low mortgage rates are something people are unwilling to pass up and as long as the rates stay down, sales will remain up," said Joel Naroff of Naroff Economic Advisors.

"With housing being the rock of the economy, the Fed would not want to see it falter"

Consumer confidence is monitored by economists as a harbinger of consumer spending, which accounts for two-thirds of US economic activity.

"The bad part of this report was that consumers still believe the economy is having significant problems," said Naroff.

"The good part was that they thought those problems would be fixed soon," he said.

Analysts said the end of the Iraq war helped lift US consumer spirits but that many remain worried about weak economic and job market conditions.

"The end of fighting in Iraq, lower energy prices, a rising stock market and low interest rates have consumer confidence on the upswing," said Sung Won Sohn, chief economist at Wells Fargo Bank. "However, stagnant business conditions and a weak labor market have tempered the rise. A lack of job creation is proving to be the biggest stumbling block for the economy right now."

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