August 27, 2008
Falling Prices at the Pump Raising Spirits of Consumers
By Anne D'Innocenzio Associated Press
NEW YORK -- Americans felt better about the economy in August, as a barometer of sentiment posted the biggest boost in two years amid falling gas prices.
Two reports suggested that a bottom could be nearing for the housing market, but economists caution it's too early to proclaim that the worst is over.
The Conference Board, a private research group, said Tuesday that its consumer confidence index rose to 56.9, up from a revised 51.9 in July. That's the largest gain since August 2006, and is ahead of the 53 expected by economists surveyed by Thomson/IFR.
It's also the second month in a row that sentiment improved, after a six-month slide since January -- but it remains about half what it was a year ago, and worries about the job market persisted.
"It's still too early to call a bottom" on both confidence and housing, said Gary Thayer, senior economist at Wachovia Securities.
The Standard & Poor's/Case-Shiller U.S. National Home Price Index released Tuesday showed home prices dropped a record 15.4 percent during the second quarter. However, the rate of single-family home price declines slowed from May to June, a possible silver lining.
Sales of new homes rose in July, but still fell short of economists' expectations, and home prices continued to sink. Still, the July increase followed a sharp downward revision to June's sales.
"Consumer confidence readings suggest that the economy remains stuck in neutral, but may be showing signs of improvement by early next year," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement. However, "overall readings are still quite low by historical standards, and it is still too early to tell if the worst is behind us."
Economists and investors closely monitor consumer sentiment as consumer spending represents about two-thirds of all economic activity.
Falling gas prices in recent weeks helped boost consumers' mood, Franco said.
Gas prices have dropped 15 cents a gallon in the last two weeks, according to the Lundberg Survey of 7,000 gas stations nationwide, released Sunday. The average price of a gallon of regular gasoline was $3.70 on Friday.
Despite that, gas nationally was almost 95 cents a gallon higher than a year ago, and the volatility in oil prices is a big concern for investors. But Tuesday's reports helped offset a spike in oil prices that rose out of concerns Hurricane Gustav might hit installations in the Gulf of Mexico in coming days. The Dow Jones industrial average rose 26.62 to close at 11,412.87.
The Conference Board's index that measures shoppers' current assessment of the economy declined to 63.2 from 65.8 in July. But the one that gauges their outlook over the next six months jumped to 52.8 from 42.7 in July. The 10-point increase marked the biggest gain since November 2005, when the economic fallout of hurricane Katrina was subsiding.
But the Consumer Confidence report -- derived from responses received through Aug. 19 of a representative sample of 5,000 U.S. households -- showed people's current assessment of the labor market turned bleaker.
Those saying jobs are "hard to get" rose to 32.0 percent from 30.2 percent in July, while those who found them "plentiful" declined to 13.1 percent from 13.6 percent. Their outlook for what's ahead in the labor market was less gloomy. The percent anticipating fewer jobs in the months ahead decreased to 30.6 percent from 37.3 percent, while those expecting more jobs increased to 10.5 percent from 8.0 percent.
While economists say they can't underestimate the relief among consumers to see gas prices come down, Americans are still faced with a number of challenges as they head into the crucial fall and holiday selling seasons, from a weak job market to tight credit conditions and the housing slump.
"It's encouraging to see the benefit of lower gas prices helping consumers a bit," Thayer said. But he noted that there's still a lot of worry out there. As for the housing market, he cautioned that mortgage rates have not come down and tighter lending standards could stall any housing recovery.
The Standard & Poor's/Case-Shiller report showed that 14 cities in the monthly index showed improvement from May to June, but nine recorded positive returns. Meanwhile, the Commerce Department reported that new home sales rose 2.4 percent in July to a seasonally adjusted annual rate of 515,000 units, the most since April. But sales in June had dropped to a pace of just 503,000 -- down from previous estimates of 530,000 -- to mark the worst performance since September 1991.
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