US consumer confidence at 18-year high; House price gains slowly


WASHINGTON (Reuters) – Consumer confidence in the US rose to an 18-year high in October, driven by a robust labor market that supports expectations for strong economic growth by early 2019.

FILE PHOTO – A house for sale is seen in Santa Monica, California, USA, March 21, 2017. REUTERS / Lucy Nicholson

But a weakening housing market and tighter financial market conditions cast a shadow over the economic expansion, which is in its ninth year, the second longest in history. Housing prices continued to slow in August, while other data showed that higher mortgage rates weighed on housing demand.

"We do not know how long this will last, but the consumer is optimistic about the outlook and this means that the economy will continue to move from the last recession in this long economic expansion," said Chris Rupkey, chief economist at MUFG in New York.

The Conference Board announced that the consumer confidence index rose to 137.9 this month, its highest level since September 2000, after a drop of 135.3 in September. The economists surveyed by Reuters predicted that the consumer index would drop from 136.4 in September to 136.0.

Consumers' assessment of the current business and labor market conditions improved despite a strong sell-off in stock markets and an increase in US Treasury yields, which exacerbated financial market conditions. The S & P 500 stock market index fell more than 8 percent this month.

The survey by the Conference Board puts more emphasis on the job market. The so-called labor market differential of the survey, which is derived from data on respondents indicating that jobs are scarce or numerous, has been the most favorable since January 2001.

This measure correlates closely with the unemployment rate in the employment report of the Ministry of Labor. Economists said it increases the possibility that the unemployment rate could fall further from a nearly 49-year low of 3.7 percent. The government will publish its employment report for October on Friday.

"At the end of the day, it's the job market or the security of having a job with a regular paycheck that supports trust and spending," said Jennifer Lee, senior economist at BMO Capital Markets in Toronto. "So far, so good."

Consumer confidence at multi-year highs bodes well for the upcoming holidays. Over the next six months, more consumers planned to buy cars and houses, but the proportion of those looking to purchase larger appliances slipped.

The dollar was close to a 2 1/2 month high in a basket of currencies, while stocks on Wall Street were higher. The US Treasury bonds rose.

APARTMENT SEARCH SOFTENING

The economy grew at an annualized 3.5 percent in the third quarter and is poised to reach the Trump government's goal of achieving annual growth of 3.0 percent this year.

Growth was fueled by a $ 1.5 trillion tax cut. Economists estimate that the tax-incentive stimulus peaked in the third quarter and expect growth to slow gradually starting in the second half of 2019, partly offset by higher interest rates.

The Federal Reserve raised the cost of borrowing three times this year, and in September dropped the reference to "expansive" monetary policy from its policy statement. For the US Federal Reserve, interest rates are expected to rise in December.

Higher credit costs have cooled housing demand; Sales and residential construction declined in September.

A separate Tuesday report showed that the S & P CoreLogic Case-Shiller composite home price index of 20 major US cities rose 5.5 percent year-on-year in August after rising 5.9 percent in July. Housing price growth slowed to 6.8 percent in March. Prices have risen due to a lack of real estate in the market, but now mortgage rates have risen to a seven-year high.

"The sharp rise in mortgage rates in 2018 continued to weigh on both property sales and house prices," said Brent Campbell, economist at Moody's Analytics in West Chester, Pennsylvania.

"With the Fed continuing to tighten monetary policy until 2018 and 2019, mortgage rates are likely to rise even more, leading to lower housing demand and a modest rise in housing prices in 2019."

Reporting by Lucia Mutikani; Editing by David Gregorio

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