Reports boost economic hopes

WASHINGTON – Home prices are surging, job growth is strengthening and stocks are setting record highs. All of which explains why Americans are more hopeful about the economy than at any other point in five years.

Investors on Tuesday celebrated the latest buoyant reports on consumer confidence and housing prices, which together suggest that growth could accelerate in the second half of 2013.

Greater confidence could spur people to spend more and help offset tax increases and federal spending cuts. And the fastest rise in home prices in seven years might lead more Americans to put houses on the market, easing supply shortages that have kept the housing recovery from taking off.

Tuesday’s report from the Conference Board, a private research group, showed that consumer confidence jumped in May to a reading of 76.2, up from 69 in April. That’s the highest level since February 2008, two months after the recession officially began.

A separate report showed that U.S. home prices jumped nearly 11 percent in March compared with a year ago, the sharpest 12-month increase since April 2006. Prices rose year after year in all 20 cities in the Standard & Poor’s/Case-Shiller home price index.

The economic news helped send the Dow Jones industrial average up 106 points to close at a record. The Dow has rocketed nearly 18 percent this year. And the Standard & Poor’s 500 stock index is on track for its seventh straight monthly gain, the longest winning streak since 2009.

Surging stock prices and steady home-price increases have allowed Americans to regain the $16 trillion in wealth they lost to the recession. Higher wealth tends to embolden people to spend more. Some economists have said the increase in home prices alone could boost consumer spending enough to offset the expiration of a Social Security tax cut that has reduced paychecks for most Americans this year.

The Conference Board survey said consumers are also more optimistic about the next six months. That should translate into greater consumer spending, substantial growth in hiring and faster economic growth in the second half of 2013, said Thomas Feltmate, an economist with TD Economics.

Michael Quintos, head of a Chicago advertising agency that helps small businesses market themselves through social media, sees more optimism at work and among friends and relatives.

“A year ago, I had more friends asking me if I knew anybody who was hiring,” Quintos said. “Now I have more people who are hiring asking me if I know anyone looking for a job.”

The Conference Board found that optimism is growing mostly among those earning more than the median household income of roughly $50,000. For those households, the confidence index jumped to 95.1 from 85.3.

Among most other income groups, confidence either rose more slowly or fell. For those earning $15,000 to $24,999, for example, the confidence index rose modestly, from 52.6 to 55.9. And for those earning $25,000 to $34,999, it slipped from 59.8 to 57.9.

Economists say the disparity points to the gain in stock prices, which mostly benefits more-affluent Americans.

Consumers’ outlook on the job market also improved last month. The percentage who said jobs are plentiful rose, and the percentage who said they’re hard to find declined. Economists say the shift suggests that the pace of hiring could pick up.

The economy has added an average of 208,000 jobs a month since November. That’s well above the monthly average of 138,000 during the previous six months. The job growth has helped reduce the unemployment rate to a four-year low of 7.5 percent.

Some of the decline in unemployment is due to fewer people looking for work. The government counts people as unemployed only if they’re actively searching for a job.

The economy grew at an annual rate of 2.5 percent in the January-March quarter, up from a rate of just 0.4 percent in the October-December quarter. The fastest expansion in consumer spending in more than two years drove the economy’s growth.

One potential obstacle to further economic gains is that workers’ pay is rising only modestly. Without faster growth in pay, some consumers may be reluctant to keep spending more.

“If you don’t think your income is going up, you will not be exuberant in your spending,” notes Joel Naroff, chief economist at Naroff Economic Advisors.