Consumer confidence rose in June to its highest level in more than 30 years, signaling even stronger economic growth ahead, the Conference Board
reported today. The figures were released as Federal Reserve policy-makers were beginning a two-day meeting in Washington, where they were widely expected to boost interest rates in a bid to cool off the
economy and prevent inflation from rekindling.
Mortgage rates already have been rising for two months, and that apparently has begun putting a
damper on home sales. The Commerce Department reported today that sales of new homes fell 5.1 percent in May – double what analysts had been expecting.
Sales were at a seasonally adjusted annual rate of 888,000 units in May, down from an April sales pace of 936,000 units, the department said.
The rise in the consumer confidence index to 138.4 in June from a revised 137.7 in May was the eighth consecutive monthly increase.
Lynn Franco, associate director of the Conference Board's Consumer Research Center, said the report indicates that "current confidence levels point to even stronger economic growth next year
than previously projected."
She added: "The key ingredient is the labor market. That remains extremely strong, and that gives consumers confidence."
Gary Thayer, chief economist at A.G. Edwards & Sons Inc. in St. Louis, noted that most analysts expect the Fed to raise rates at this week's meeting.
"Historically, the Fed's job is to take the punch bowl away from the party," Thayer said. A rise in rates "could cause (consumer) expectations to cool off a bit," he said.
Financial markets showed little reaction to the figures as traders awaited the Fed's announcement Wednesday.
Consumer sentiment is an important economic indicator because consumer spending accounts for
two-thirds of the nation's overall economic activity.
In a report released Monday, the Commerce Department said that consumer spending outpaced income in May, sending the nation's savings rate to an all-time low.
Such strong spending has been the major factor pushing U.S. economic growth. But the Fed has begun to worry that tight labor markets will soon increase wage pressures and lead to higher inflation.
The Conference Board said that June's reading was the highest since the all-time record for the index of 142.3 set in October 1968.
The June figures were well above analysts' average expectations of a reading of 136.1 for the index.
The latest report from the business-financed research group also indicated that consumers were
optimistic about the future.
A companion gauge indicating expectations over the next six months rose in June to 114.9 from a
revised 111.3 in May, the report said. The June reading was the highest since 116.2 in June 1998, it said.
Still, there was some slippage in consumers' confidence about business conditions. Just slightly more
than 40 percent termed them good in June, down from 44.3 percent in May. Some 9.6 percent of those surveyed rated them "bad" in June, up from 8.3 percent the month before.
Optimism about job opportunities also weakened, with 41.8 percent saying jobs were not so plentiful in June, up from 39.9 percent in May.
The consumer confidence index, started in 1967, is compiled from responses to questions sent to 5,000 households nationwide. The survey polls consumers on matters ranging from job prospects to buying plans.
The index compares results to its base year, 1985, when it stood at 100.
