Confidence grows among US consumers

Consumers have grown more optimistic about the US economy, looking past a weak housing market and uncertainty in Europe to buoy a prominent measure of sentiment.

The Conference Board’s consumer confidence index rose to the highest level since April, with people polled by the research group revealing an improving outlook on business conditions and the labour market.

The index has reached now 64.5, up from 55.2 in November, but still at recessionary levels.

The more optimistic tone from consumers comes as President Barack Obama’s approval rating also has shown new signs of improvement. According to a Gallup poll, 47 per cent of Americans approved of the job that Mr Obama has been doing, compared to 45 per cent who disapproved. It was the first time since July, when he was enjoying a surge in popularity after the killing of Osama bin Laden, that his approval rating was above his disapproval rating in the Gallup poll. Two polls last week detected a similar trend.

According to Gallup, presidents seeking re-election face a difficult task if their approval rating is below 48 per cent. Mr Obama had been polling in the low 40s for much of the last six months.

Mr Obama’s improved ratings could be the result of modest economic improvement, but they could also reflect disenchantment with the Republican party following a dispute last week over extending a cut in payroll taxes, which was eventually approved but which underlined the impression that Republicans in the House of Representatives are focused mainly on opposing the president.

Lynn Franco, director of the Conference Board consumer research centre, said US consumers had ended 2011 “in a somewhat more upbeat mood”, but she cautioned that it was too early to tell if the rebound signalled a sustainable shift.

Consumer spending is a key component of the US economy. Other gauges, such as the Thomson Reuters/University of Michigan consumer sentiment survey, have also improved. The elevated US unemployment rate has begun to retreat, as have petrol prices after nearing $4 a gallon earlier this year.

Amid the signs of improving economic confidence, the continued weight on consumers from the real estate bubble last decade was underscored by data released separately on Tuesday that showed a continued slide in house prices in October.

The S&P Case-Shiller 20-city home price index indicated that house prices fell 3.4 per cent in October from the same month period last year. Analysts surveyed by Bloomberg had expected a 3.2 per cent decline. Prices dropped 1.2 per cent from September to October, the fastest decline in a year.

“In the October data, the only good news is some improvement in the annual rates of change in home prices, with 14 of 20 cities and both composites seeing their annual rates of change improve,” said David Blitzer, chairman of the index committee at S&P Indices.

Andrew Wilkinson, chief economic strategist at Miller Tabak, said: “It’s very well known that house prices are in decline and the impact of falling prices seems to be waning. The consumer confidence reports is far-more forward looking, and the numbers were very strong.”

House prices have been in sustained retreat after a momentary rebound last year, though the pace has slowed since the housing bubble burst in 2006. Historically low interest rates have apparently done little to prop up values, though new house construction has started to pick up.

Meanwhile, the White House will ask Congress to increase the debt limit by an additional $1,200bn by the end of the week. Under terms of the new budget deal agreed during the summer, Congress has 15 days to block such an increase, although the president can also veto such a measure.