Business

U.S. consumer confidence rebounds; spending plans rise strongly

WASHINGTON (Reuters) -U.S. consumer confidence unexpectedly rose in October as concerns about high inflation were offset by improving labor market prospects, suggesting economic growth was picking up after a turbulent third quarter.

FILE PHOTO: Shoppers browse in a supermarket while wearing masks to help slow the spread of coronavirus disease (COVID-19) in north St. Louis, Missouri, U.S. April 4, 2020. REUTERS/Lawrence Bryant

The survey from the Conference Board on Tuesday showed consumers eager to buy a home and big-ticket items such as motor vehicles and major household appliances over the next six months. The share of Americans planning to go on vacation was the largest since February 2020, just before the nation was slammed by the first wave of COVID-19 infections.

Coronavirus infections over the summer, driven by the Delta variant, and supply chain constraints related to the pandemic restrained economic activity last quarter.

“Consumers are more upbeat after a rocky third quarter and this argues for a strong finish for the economy in 2021,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “Consumers know the tight labor market has their backs. Those forecasting a recession from the drop in the confidence late in the summer will have to back off that call.”

The consumer confidence index increased to a reading of 113.8 this month from 109.8 in September, ending three straight monthly declines. The measure, which places more emphasis on the labor market, remains below its peak of 128.9 in June. The rise was in contrast with the University of Michigan’s survey of consumers, which showed sentiment ebbing early this month.

Economists polled by Reuters had forecast that the index would dip to 108.3. The Conference Board’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, raced to a reading of 45 this month, the highest in 21 years, from 43.5 in September.

This measure closely correlates to the unemployment rate in the Labor Department’s closely watched employment report. There were 10.4 million job openings at the end of August.

Consumers’ inflation expectations over the next 12 months jumped to 7.0%, the highest in 13 years, from 6.5% last month.

Despite perceptions of high inflation, consumers planned to step up spending. Buying intentions for motor vehicles rebounded from a nine-month low. More consumers intended to purchase household appliances like washing machines, television sets and refrigerators over the next six months, suggesting consumer spending would regain steam after an apparent sharp deceleration last quarter.

Gross domestic product growth estimates for the third quarter are mostly below a 3% annualized rate. The economy grew at a 6.7% pace in the second quarter. The government will publish its snapshot of third-quarter GDP growth on Thursday.

Consumer spending this quarter is also likely to be boosted by increased demand for travel. The percentage of consumers saying they plan to take a vacation in the next six months increased to 47.6%. That was the highest figure since the pandemic started and was up from 42.3% in September.

They mostly planned trips in the United States and intended to either drive or fly to their destinations.

Stocks on Wall Street were trading higher, with the benchmark S&P 500 index hitting a record high. The dollar rose against a basket of currencies. Prices of shorter-term U.S. Treasuries fell.

‘BUYER FATIGUE’

There was also good news on the housing market. A separate report from the Commerce Department on Tuesday showed sales of new single-family homes surged 14.0% to a seasonally adjusted annual rate of 800,000 units in September, the highest level in six months.

The Conference Board survey showed consumers more inclined to buying a home over the next six months. The housing market could get a lift from a moderation in house price inflation.

A third report on Tuesday showed the S&P CoreLogic Case-Shiller national home price index increased 19.8% in August from a year ago after a similar gain in July. Its 20 metropolitan area home price index rose 19.7% on a year-on-year basis after a record 20% jump in July.

Signs that house price growth has peaked were evident in a fourth report from the Federal Housing Finance Agency that showed house prices rose 18.5% in the 12 months through August after surging by a record 19.2% in July.

“The slowing acceleration in home prices suggests that buyer fatigue is setting in, particularly among higher-priced homes where the acceleration in price growth from the previous month has been larger compared to low-tier homes,” said Selma Hepp, deputy chief economist at CoreLogic.

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