Thursday, May 28, 2009

U.S. consumer confidence improving, but house prices wane

U.S. consumer confidence in May hit its highest level since September, the Conference Board said Tuesday.

The research group said its consumer confidence index topped economists' expectations by coming in at 54.9, the best reading in eight months. Economists had been expecting a reading of 42.3.

The May reading was a big jump from the 40.8 seen in April.

The report is based on survey of 5,000 U.S. households. A rising figure indicates improved consumer sentiment.

The New York-based group said its present situation index — a gauge of how consumers feel right now — increased to 28.9 from 25.5 last month, while its expectations index — a reading on what consumers expect over the next six months — rose to 72.3 from 51.0 in April.

"Continued gains in the present situation index indicate that current conditions have moderately improved, and growth in the second quarter is likely to be less negative than in the first," said Lynn Franco, director of the Conference Board Consumer Research Centre.

"Looking ahead, consumers are considerably less pessimistic than they were earlier this year, and expectations are that business conditions, the labour market and incomes will improve in the coming months. While confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us," Franco said.

Consumer confidence is closely watched because consumer spending accounts for about 70 per cent of U.S. economic activity.

Home prices decline 19% in Q1

The consumer confidence figures came out on the same day that another report indicated home prices in the U.S. dropped during the first quarter at the fastest annual rate on record.

The Standard & Poor's/Case-Shiller national home price index tumbled by 19 per cent in the quarter, the most in 21 years of index history.

While the first-quarter drop was a record, the 12-month drop in March of 18.7 per cent for 20 key cities marked an improvement from February's 12-month figure.

One analyst suggested home prices may not have bottomed out yet.

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

With files from The Associated Press

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