Consumer confidence, housing data bolster U.S. growth outlook

WASHINGTON Tue Jun 24, 2014 1:03pm EDT

A new home is being built on a street in Vienna, on the morning the National Association of Realtors issues its Pending Home Sales for February report, in Virginia March 27, 2014. REUTERS/Larry Downing

A new home is being built on a street in Vienna, on the morning the National Association of Realtors issues its Pending Home Sales for February report, in Virginia March 27, 2014.

Credit: Reuters/Larry Downing

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WASHINGTON (Reuters) - U.S. consumer confidence jumped to its highest level in nearly 6-1/2 years in June and sales of new homes surged in May, the latest signs that the economy has regained momentum.

Growth is accelerating after crumbling in the first quarter, but Tuesday's robust reports likely exaggerate the strength. Nevertheless, they added to data on employment, factory and services sector activity in suggesting a sharp growth rebound.

"This is convincing evidence that the economy continues to expand," said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York. "It takes a lot of confidence to buy the biggest of big ticket items consumers ever face, buying a new home."

The Conference Board said its consumer confidence index rose to 85.2, the highest reading since January 2008, from 82.2 in May as households grew more optimistic about the labor market.

The reading, however, was at odds with another survey published last week, which showed consumer sentiment ticking down in early June. Still, economists said it was in line with other data showing an improvement in job market conditions.

In another report, the Commerce Department said new home sales vaulted 18.6 percent to a seasonally adjusted annual rate of 504,000 units, the highest level since May 2008.

The increase in sales was the biggest since January 1992. However, new homes sales data are notoriously volatile because they are drawn from a small sample, and last month's jump likely overstates the pace of improvement.

New home sales increased in all four regions. They hit a six-year high in the Midwest and were the highest since June 2008 in the South.

"May should be taken with a grain of salt, but the result was encouraging, particularly since it was led by a jump in the West, which has been the biggest problem area for housing market activity this year," said Ted Wieseman, an economist at Morgan Stanley in New York. 

HOUSING RECOVERING

The economy contracted at a 1.0 percent annual pace in the first three months of the year and growth estimates for the second quarter range as high as 3.8 percent.

Economists had forecast new home sales rising to a pace of only 440,000 units last month. Compared to May of last year, sales were up 16.9 percent, indicating some momentum in the new homes market.

Homebuilder shares rose on the data. The SPDR S&P Homebuilder ETF (XHB.P) advanced more than 1 percent, led by a 2.6 percent gain for D.R. Horton Inc. (DHI.N). Lennar Corp. (LEN.N) rose 2.8 percent and PulteGroup Inc. (PHM.N) was up 1.6 percent.

The dollar firmed against a basket of currencies. Prices for U.S. Treasury debt edged up.

Higher mortgage rates and a surge in prices amid a dearth of properties available for sale have weighed on the housing market since the middle of 2013.

But as mortgage rates level off and house price appreciation slows, signs of life are emerging.

A report on Monday showed sales of previously owned homes, the largest segment of the housing market, recorded their largest increase in more than 3-1/2 years in May.

A third report on Tuesday showed the S&P/Case-Shiller composite index of house prices in 20 metropolitan areas rose just 0.2 percent in April, with the year-on-year increase slowing to 10.8 percent.

It was the smallest 12-month gain since March of last year and followed a 12.4 percent year-on-year jump in March.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

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