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Rising home and stock prices boost US confidence

May 29, 2013
By CHRISTOPHER S. RUGABER , THE ASSOCIATED PRESS

WASHINGTON - Americans are more confident in the U.S. economy than at any point in the past five years, thanks to surging home values, a brighter job market and record-setting stock prices.

Stock averages on Tuesday extended the year's explosive rally.

Further gains in consumer confidence could help the economy withstand the effects of higher taxes and federal spending cuts that kicked in this year. Spending by consumers drives about 70 percent of economic growth.

Article Photos

AP PHOTO
Trader Gregory Rowe on the floor of the New York Stock Exchange Tuesday. Americans are more confident in the U.S. economy than at any point in the past five years, thanks to surging home values, a brighter job market and record-setting stock prices.

Consumer confidence jumped in May to 76.2, the Conference Board, a private research group, said Tuesday. That was up from a reading of 69 in April and is the highest level of confidence since February 2008, two months after the Great Recession officially began.

A separate report Tuesday showed that U.S. home prices jumped 11 percent in March compared with a year ago, the sharpest 12-month increase since April 2006. Prices rose year over year in all 20 cities in the Standard & Poor's/Case Shiller home price index.

The reports helped fuel a rally on Wall Street. Traders were also encouraged by gains in overseas markets, especially in Japan and Europe.

The Dow Jones industrial average was up about 112 points in late-afternoon trading. Broader stock indexes also rose. The Dow has rocketed 18 percent this year.

Surging stock prices and steady home-price increases have allowed Americans to regain the $16 trillion in wealth they lost to the Great Recession. Higher wealth tends to embolden people to spend more. Some economists have said the increase in home prices alone could boost consumer spending enough to offset a Social Security tax increase that's reduced paychecks for most Americans this year.

Thomas Feltmate, an economist with TD Economics, says cheaper gas has also helped consumers shrug off the higher Social Security tax.

And the Conference Board survey said consumers are also more optimistic about the next six months. That should translate into greater consumer spending, substantial growth in hiring and faster economic growth in the second half of 2013, Feltmate said.

Michael Quintos, head of a Chicago advertising agency that helps small businesses market through social media, sees more optimism at work and among friends and relatives.

"A year ago, I had more friends asking me if I knew anybody who was hiring," says Quintos, 44. "Now, I have more people who are hiring asking me if I know anyone looking for a job."

At work, Quintos is finding it easier to land customers. In the past couple of months, businesses that have asked about his services have been more likely to follow through and hire him. A year ago, most were wary.

"I've had more work than I can handle," Quintos says. As a result, his firm hired a web designer last week.

The Conference Board found that optimism is growing mostly among higher-income earners. For Americans earning $50,000 or more, the confidence index jumped to 95.1 from 85.3. Among most other income groups, confidence either rose more slowly or fell.

Economists said that disparity points to the rapid gain in stock prices, which mostly benefits wealthier Americans.

 
 

 

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