US consumer confidence leaps by most in six years

WASHINGTON - Confidence among United States consumers jumped in May by the most in six years, fuelling speculation the economy will recover later this year.

The Conference Board's sentiment index surged to 54.9, higher than forecast, according to figures from the New York-based research group yesterday. A report from S&P/Case-Shiller showed home prices continued to plunge.

Stocks climbed for the first time in five days on speculation a lifting of the gloom surrounding the worst recession in half a century may spur consumers, who account for 70 per cent of the economy, to spend. However, rising unemployment and falling property values underscore that it will take time to establish a sustained rebound.

"Pent-up demand is increasing each passing day as reflected in these confidence numbers," said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts.

"But there is a funny dynamic going on as people are waiting. The turn will come when there is a sense that we have passed the bottom," which Behravesh said may happen as early as August.

The 28-point jump in confidence over April and May is the biggest two-month rally since records began in 1967. The measure reached its lowest point ever in February, with a reading of 25.3.

Consumer confidence was projected to rise to 42.6, according to the median estimate in a Bloomberg News survey of 70 economists. Forecasts ranged from 38.5 to 47.

The Conference Board revised the April reading to 40.8, from an originally reported 39.2.

Americans' spirits are lifting as stock prices rebound, mortgage rates fall and perceptions grow that the job market may not get much worse.

Discounts by companies such as Chrysler and Macy's to attract customers are also benefiting consumers.

"We're certainly moving in the right direction," said James O'Sullivan, a senior economist at UBS Securities in Stamford, Connecticut.

"We expect to have positive economic growth in the third quarter. The job declines will fade."

The report showed the number of Americans planning to buy a car in the next six months rose to the highest level since April 2008, and those looking to buy a large appliance rose to an eight-month high. The outlook for home purchases fell.

Concern over falling property values may be contributing to that restraint. A report from S&P/Case-Shiller showed home prices in 20 US metropolitan areas fell a more-than-forecast 18.7 per cent in March from the same month last year, as foreclosures surged.

All 20 cities in the index showed a year-over-year price decrease in March, led by Phoenix, Las Vegas and San Francisco.

Compared with the month before, prices fell in 17 cities, led by a 6.1 per cent drop in Minneapolis that was the largest one-month decrease ever recorded by any city.

The 4.9 per cent month-over-month fall in Detroit and the 2.5 per cent decrease in New York also set records for those cities.

"We see no evidence that a recovery in home prices has begun," David Blitzer, chairman of the index committee at S&P, said.

The report also showed prices nationally fell 19.1 per cent in the first quarter from the same period last year, the largest drop in the figure's 21-year history, and were down 7.5 per cent from the last three months of 2008.

"The housing market still has somewhat of a ways to go before it completely bottoms," Celia Chen, an economist at Moody's Economy.com in Pennsylvania, said.

"I think prices will still fall a little bit further."

The confidence report showed optimism over the next six months led the jump. The Conference Board's expectations measure rose to 72.3, the highest level since December 2007. The gauge of present conditions increased to 28.9 from 25.5.

The share of consumers who said more jobs will be available in the next six months climbed to 20 per cent, the most in more than five years.

The proportion of people who said they expect their incomes to rise over the next six months rose to 10.2 per cent from 8.3 per cent.

"As far as consumers are concerned, the worst is now behind us," Lynn Franco, director of the Conference Board's consumer research centre, said.

- BLOOMBERG