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U.S. consumer confidence hit a seven-month high in August and new single-family home sales rebounded in July, suggesting underlying strength in the economy that could still allow the Federal Reserve to raise interest rates this year.
Other data Tuesday showed moderate gains in house prices in June, which should support consumer spending and keep home purchasing affordable, especially for first-time buyers.
“This is evidence of the ‘some further improvement’ in the economy that the Fed is waiting for to raise rates. They are so close, they need just a little more confirmation,” said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.
The Conference Board said its consumer index jumped 10.5 points to 101.5 this month, the highest reading since January, amid optimism over the labor market. The survey, however, was conducted before a global equity markets sell-off that began last week, which has diminished the chances of a U.S. rate hike next month.
Although sentiment could retreat in September, economists said any decline was likely to be modest. A strong labor market, lower gasoline prices and an improving housing market also are seen supporting consumer confidence.
The survey’s so-called labor market differential, which closely correlates to the unemployment rate in the employment report, was the most favorable since January 2008.
The share of consumers expecting an increase in incomes slipped, but fewer anticipated a decline.
“If this upbeat sentiment is sustained, then it could potentially provide a strong platform for a sustained upswing in consumer spending activity, which could provide a strong tailwind for the economic recovery going forward,” said Millan Mulraine, deputy chief economist at TD Securities in New York.
In a separate report, the Commerce Department said new-home sales increased 5.4 percent to a seasonally adjusted annual rate of 507,000 units. Those sales, which account for 8.3 percent of the market, were up 25.8 percent compared to July of last year.(SD-Agencies)
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