Economic optimism up; will it continue?
Published: Wednesday, January 31, 2007 at 6:01 a.m.
Last Modified: Wednesday, January 31, 2007 at 12:00 a.m.
NEW YORK — Consumers were feeling confident in January: The job market was chugging along and oil prices were down. Their optimism may dwindle, however, on concerns that job and wage growth may slow.
The Conference Board, a private research group, said Tuesday that its Consumer Confidence Index edged up to 110.3 in January from a revised 110.0 in December. Analysts had expected a reading between 110.0 and 110.5.
The January index was the highest in five years, suggesting that consumers will continue to be the engine behind the nation's economic growth in coming months.
At the same time, a measure of consumer expectations for the next six months dropped to 94.5 in January from 96.3 the month before.
Lynn Franco, director of the board's consumer research center, said that "looking ahead ... consumers are not as optimistic as they were in December." As a result, the index suggests just "moderate improvement" in economic growth in early 2007.
This should ease fears at the Federal Reserve, which is meeting next Tuesday and Wednesday to review its economic policy, said Anthony Chan, managing director and chief economist with JPMorgan Private Client Services in New York.
"At the central bank, they're mainly concerned about the economy overheating," Chan said. "I think this report says they can sit and watch."
Still, he said, the economy will benefit in the short run from continued consumer spending because the latest figures "tell us that at the moment, the consumer is in a sweet spot thanks to improved labor market conditions and lower oil prices."
The Dow Jones industrial average rose 32.53, or 0.26 percent, to 12,523.31. The S&P 500 index advanced 8.20, or 0.58 percent, to 1,428.82, while the Nasdaq composite index increased 7.55, or 0.31 percent, to 2,448.64.
The consumer confidence index, which is based on a survey of 5,000 U.S. households by the New York-based research group, is closely watched because consumer confidence often signals changes in spending trends. Consumer spending makes up about two-thirds of the U.S. economy.
January's index reading on consumer confidence was the highest since 110.7 in March 2002 and matched a reading of 110.3 in May 2002, the Conference Board said.
David H. Resler, chief economist with Nomura Securities in New York, pointed out that January's reading was boosted by optimism about the job market, with nearly 30 percent of those surveyed saying jobs were plentiful.
"You're looking at a reflection of what is making consumers feel good," he said. "It tells you that the conditions that underpin things like consumer spending are pretty good, so people are going to spend."
The figures also showed "people are not quite as pessimistic about the car market as they were, but housing is still languishing."
Weakness in the housing market could be seen in another report issued Tuesday. An index prepared by Standard & Poor's showed that the prices of single-family homes across the nation rose in November at the slowest rate in more than a decade, a further sign that housing will be a drag on the economy.
The S&P/Case-Shiller composite index showed a 1.3 percent year-over-year rise in the price of a single-family home based on existing homes tracked over time in 10 metropolitan markets.
The slower housing market may be weighing on consumers' expectations about the future, the economists said.
The Conference Board's Expectations Index, which measures consumers' outlook over the next six months, dropped to 94.5 in January from 96.3 the month before.
The report said those anticipating business conditions to worsen rose to 8 percent from 7.8 percent while those who expected business conditions to get better decreased to 16.2 percent from 16.7 percent.
Those anticipating fewer jobs edged up to 15.7 percent in January from 15.5 percent. Asked if they expected their incomes to increase, 19.8 percent said "yes" in January, down from 21.4 percent in December.
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