Consumer confidence rose in November for the first time in six months as Americans grew more optimistic about the future even as they saw no real sign of improvement in the sluggish economy, according to a survey released Tuesday.
The consumer confidence report from the Conference Board, although slightly weaker than many analysts had expected, was the latest sign that this fall’s economic downturn has at last hit bottom, economists said.
Separate reports from the government Tuesday showed that economic growth in the third quarter was stronger than originally reported, and that new-home sales were stronger than expected in October, although they fell slightly from September’s record high.
“The bottom line is that the economy and consumer confidence have hit the bottom,” said Sung Won Sohn, chief economist at Wells Fargo. “We are coming out of the turn and moving onto higher ground.”
But he and other analysts cautioned that businesses will remain cautious and growth is likely to be extremely sluggish through the end of the year and possibly into 2003.
“Certainly the slide you saw in the data has stopped,” said Ethan Harris, co-chief U.S. economist at Lehman Bros. “It doesn’t mean we’re going to start growing solidly again. It just means we’re not sliding inexorably into recession.”
The Conference Board, a New York-based research group, said its Consumer Confidence Index rose to 84.1 from 79.6 in October. It was the first increase in the figure since May, although it left the index well below May’s level of 110. (The index has a 1985 base of 100.)
The improvement was entirely due to consumers’ improved expectations as the group’s “Present Situation Index” barely budged, rising marginally to 77.6 from 77.2. Consumers in the survey actually reported that jobs were slightly harder to get in November than they were a month earlier.
Cautious consumers
“The good news is that people are a little more confident in the future, but confidence still is at level that indicates a cautious consumer,” said Lynn Franco, who directs the survey for the Conference Board. Nevertheless she said the rebound in confidence “signals a brighter holiday spending season than was anticipated only a month ago.”
Sohn agreed and said he expects the holiday season to be “decent.” And he said economic data could turn surprisingly positive next year, especially if the Iraqi situation is resolved quickly and favorably for the United States.
“We could see surprises on the upside, primarily because expectations are so low,” he said.
Harris said consumer confidence has been buoyed over the past month by a sharp surge in stock prices, which have gained about 18 percent on average since hitting a five-year low Oct. 9.
“Basically people are happy about the stock market, but they’re unhappy about the labor market,” he said. After a wave of layoffs in October, recent data have indicated that the labor market may be steadying, but Harris said it will take months of positive economic data before companies begin hiring again in significant numbers.
“Companies are initially going to be restrained,” said Harris. “So people are going to continue to be worried and feel like the economy is really in bad shape for a while.”
Resilient real estate
Nonetheless the real estate market remains extremely strong, supported by the lowest mortgage rates in 40 years. New-home sales fell 4.5 percent in October but remained healthy at an annualized rate of 1.01 million units, according to the Commerce Department. Sales of existing homes rose to a rate of 5.77 million units in October from 5.44 million, a trade group said Monday.
“Consumers continue to spend on homes despite the lackluster economy and continued geopolitical uncertainty,” said Matthew Ellis, an economist at Wachovia. He dismissed speculation of a housing “bubble,” although he said sales are likely to fall when mortgage rates begin to rise, probably sometime next year.
Economy still growing
Separately the Commerce Department said the gross domestic product, the broadest measure of U.S. economic activity, rose at a 4 percent rate in the third quarter, rather than the 3.1 percent reported in a preliminary report a month ago. Part of the revision was due to increased accumulation of inventory in the third quarter, possibly in anticipation of a West Coast port shutdown over labor issues, analysts said.
Still, most analysts expect no more than 1.5 percent growth in the current quarter as business investment remains at subdued levels. And analysts have been ratcheting down their forecasts for growth next year.
A survey of professional forecasters released Tuesday shows that on average economists are looking for modest growth of 2.8 percent next year, compared with an average forecast of 3.2 percent just two months ago. GDP is expected to grow about 2.3 percent this year after last year’s dismal 0.3 percent growth.