U.S. consumer mood lifts despite home price plunge

NEW YORK (Reuters) - U.S. consumer confidence soared in May to its highest level in eight months, suggesting underlying improvement in the economy after a grim first quarter that witnessed a record plunge in home prices.

The Conference Board, an industry group, said on Tuesday its index of consumer attitudes jumped to 54.9 in May from a revised 40.8 in April, well above forecasts centered around 42.0. That was the biggest one-month jump since April 2003 when many Americans believed the war in Iraq was coming to a rapid conclusion.

May’s improvement was a welcome shift from the record low hit in February, and sent stocks surging nearly 2 percent.

Prices of U.S. single-family homes fell 18.7 percent in March from a year before, according to the Standard & Poor’s/Case Shiller index. In the first quarter, prices fell 19.1 percent, the most in the 21-year history of the survey, reflecting the worst housing recession in generations.

“A large oversupply of homes and tight credit continue to put downward pressure on prices,” said Gary Thayer, senior economist at Wells Fargo Advisors in St. Louis, Missouri.

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This was one of the key factors pushing confidence to historic lows in recent months, so May’s rise in the sentiment measures could portend some stabilization in housing.

Analysts say a rebound in housing is central to any economic recovery, especially since the financial position of U.S. consumers has become so closely tied to the value of their homes in recent years.

More immediately, the gains appeared to reflect some easing of the severe strains in the American labor market. Fewer Americans said jobs were “hard to get,” the survey found, with that measure slipping to 44.7 percent from 46.6 percent. Those saying jobs were plentiful climbed to a still meager 5.7 percent, but that was still up from April’s 4.9 percent.

The data was in line with other evidence suggesting that, while the economy continues to contract in the current quarter, the pace of deterioration has abated.

“The moderation in the rate of decline in economic activity has raised hopes that an actual improvement will take hold in coming months,” said Mark Vitner, senior economist at Wachovia. “But there has been little tangible improvement so far. Conditions have merely been not as bad as they had been in previous months.”

A brighter mood was also evident in Germany, where the Ifo business sentiment survey rose to 84.2 in May from 83.7 in April. That indicated a record slump in exports and investment, which drove the German economy’s biggest contraction since reunification in the first quarter, might be easing.

U.S. stocks extended their rally after the data, with the Dow Jones industrial average up 163 points or 1.9 percent.

The survey offer mixed messages regarding Americans’ propensity to spend money. The number who said they planned on buying a car over the next six months rose to 5.5 percent, its highest in at least a year. But fewer intended to buy homes -- only 2.3 percent, a tough break for one of the hardest hit sectors in the country’s economic crisis.

Editing by Kenneth Barry