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Consumer confidence comes roaring back

Just in time for the holiday shopping season, consumer confidence surged in November, boosted by a sharp drop in gasoline prices and a perception that jobs are becoming easier to find, a business research group said.
\"Cyber Monday\" Closes Long Weekend Of Holiday Shopping
Tom Morrison sorts boxed orders in the L.L. Bean shipping center on "Cyber Monday," the online retail world's version of Black Friday, Nov. 28, in Freeport, Maine. L.L. Consumers are turning more optimistic about the economy just in time for the holiday shopping season.Joe Raedle / Getty Images
/ Source: news services

Just in time for the holiday shopping season, consumer confidence surged in November, boosted by a sharp drop in gasoline prices and a perception that jobs are becoming easier to find, a business research group said Tuesday.

The government also released positive economic news Tuesday, reporting that sales of new homes rose sharply in October, as did factory orders for big-ticket manufactured items, indicating that the economy is recovering from the blow delivered by the late-season Gulf Coast hurricanes.

The Conference Board said its Consumer Confidence Index, which plummeted in September in the wake of Hurricane Katrina, rebounded sharply in November, as survey respondents turned more optimistic both about the current economic situation and the future. The index rose to 98.9 from 85.2 in October. The index stood at 105.5 in August before the hurricane came ashore.

"A decline of more than 40 cents in gasoline prices this month and the improving job outlook have combined to help restore consumers' confidence," said Lynn Franco of the Conference Board, who directs the survey. "While the index remains below its pre-Katrina levels, the shock of the hurricanes and subsequent leap in gas prices have begun wearing off just in time for the holiday season.”

Economists closely track consumer confidence because consumer spending accounts for two-thirds of U.S. economic activity.

In September, confidence took its biggest one-month plunge in 15 years as gasoline prices soared to more than $3 a gallon and tens of thousands were left jobless in the aftermath of the storm. Since then prices have dropped sharply to a national average of $2.15 a gallon, and analysts expect the government to report Friday that the economy added more than 200,000 jobs in November, which would be the best result since July.

Meanwhile the Commerce Department reported that sales of new single-family homes jumped 13 percent last month, the biggest one-month gain in more than 12 years. The increase pushed sales to a record annual rate of 1.42 million units. The median price of a new home rose 1.6 percent from September to $231,300.

The increase in new-home sales confounded analysts who had been predicting a decline, reflecting increasing mortgage rates. The surge could have been caused by buyers rushing to sign contracts on new homes and lock in rates before they rise higher.

On Monday, a trade group reported that sales of existing homes fell by 2.7 percent, and construction of new homes and apartments also fell during the month, leading to suggestions that the long boom in housing activity has peaked and has begun to decline.

Separately the Commerce Department said orders for durable goods made in U.S. factories rose 3.4 percent last month, erasing a 2 percent decline in September that was blamed on disruptions from the hurricanes Katrina and Rita and a strike at aircraft giant Boeing.

The increase was better than the 1.4 percent advance that economists had been expecting and provided further evidence that the economy is shaking off the adverse effects of the storms.

"These numbers are consistent with the view that the U.S. economy continues to chug along nicely," said Alex Beuzelin, a senior market analyst at Ruesch International.

“Nothing in this data suggests to us that the economy is on the verge of slowing sharply in the near future,” Lehman Bros. economist Drew Matus said in a note. “This means that we also continue to expect more tightening from the Fed.”

The Fed has raised short-term interest rates at every scheduled meeting of policy-makers since June 2004 and is expected to nudge rates higher again Dec. 13. The central bank has pushed the benchmark overnight lending rate a quarter-percentage point each meeting to its current 4 percent from 1 percent in mid-2004.

That has made it more costly for consumers and businesses to borrow money, especially for adjustable-rate mortgages tied to short-term rates. But in recent weeks rates have risen steadily on popular 30-year, fixed-rate mortgages, which now average about 6.25 percent, up from 5.75 percent in mid-September.

Franco of the Conference Board and other analysts warned that it was too early for retailers to be certain of a successful holiday season. Franco noted that this year’s holiday spending will be driven largely by the availability of bargain prices that consumers have come to expect this time of year.

Michael Niemira, chief economist for the International Council of Shopping Centers, said anecdotal reports about the initial spending blitz from “Black Friday” and the big Thanksgiving holiday weekend cannot necessarily be used as a bellwether for the retail season.

“The industry has several key markers of success ahead,” he said in a weekly commentary. “The first of these, which is already upon us, is how well retailers withstand the new traditional lull in sales during the two weeks following Thanksgiving.”