Shoppers, homes show signs of life

WASHINGTON — Americans' pessimism about the economy appears to be lifting, with consumer expectations for the next six months hitting their most positive point since the recession began.
The improvement stems partly from the housing market, as a national gauge of home prices on Tuesday posted its first quarterly increase in three years.

The consumer and housing reports, along with President Barack Obama's reappointment of Ben Bernanke as Federal Reserve chief, sent the financial markets modestly higher. But economists warned that consumer confidence remains far below levels associated with a healthy economy and might not lead to the increased spending critical for a broad recovery.

"People's spending decisions depend more on whether they have money in their pocket than on how they feel," said Bill Cheney, chief economist at John Hancock Financial.

Still, Cheney and other economists said Tuesday's report on consumer sentiment was encouraging. The New York-based Conference Board said its Consumer Confidence index rose to 54.1, from an upwardly revised 47.4 in July. That reading reversed two months of decline and easily beat analysts' expectations.

Consumer spending accounts for about 70 percent of U.S. economic activity. Consumer sentiment, fueled by signs the economy is stabilizing, has recovered a bit since hitting a record low of 25.3 in February.

A reading of 90 indicates the economy is on solid footing; anything above 100 signals strong growth.

Consumers' expectations for the economy in the next six months rose to 73.5 from 63.4 in July, hitting the highest level since December 2007, when the recession began. The consumer confidence survey, sent to 5,000 households, had an Aug. 18 cutoff date for responses.

More consumers said they were likely to buy a home or a car within the next six months than said so in July's survey. The outlook for jobs also improved, albeit from very low levels.

Good news for housing

The housing sector received positive news, too. The Standard & Poor's/Case-Shiller's U.S. National Home Price Index rose 1.4 percent in the second quarter from the January-March period, the first quarterly increase in three years. Home prices, though still down nearly 15 percent from last year, are at levels last seen in early 2003.

(2 of 2)

Job shortage may put drag on recoveryReal Estate Outlook: Encouraging Numbers