US consumer confidence rebounds, house prices maintain upward trend

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer confidence rose in November after three straight monthly declines, with Americans planning big-ticket purchases like motor vehicles and houses over the next six months even as they continued to fret over higher prices and interest rates.

Despite the rebound in morale, which was driven by an improvement in expectations, about two-thirds of consumers surveyed this month still perceived a recession to be "somewhat" or "very likely" to happen over the next year, the survey from the Conference Board showed on Tuesday.

Most economists are, however, not forecasting a recession, but rather a period of very slow growth. Those expectations were strengthened by recent inflation-friendly data, including a moderation in job gains in October, that have led financial markets to believe that the Federal Reserve was probably done raising interest rates this cycle.

"Overall, this data supports the idea of slower growth at the moment but the prospect of continued growth into next year," said Brad McMillan, chief investment officer at Commonwealth Financial Network in Waltham, Massachusetts.

The Conference Board said its consumer confidence index increased to 102.0 this month from a downwardly revised 99.1 in October. Economists polled by Reuters had forecast the index dipping to 101.0. The improvement in confidence was concentrated mostly among households aged 55 and up. Consumers in the 35-54 age group were less optimistic about their prospects.

The survey's present situation index, based on consumers' assessment of current business and labor market conditions, edged down to 138.2 from 138.6 in October. Its expectations index, based on consumers' short-term outlook for income, business and labor market conditions, rose to 77.8 from 72.7.

It remains below 80, a level historically associated with a recession within the next year.

"General improvements were seen across the spectrum of income groups," said Dana Peterson, chief economist at the Conference Board. "Nonetheless, write-in responses revealed consumers remain preoccupied with rising prices in general, followed by war/conflicts and higher interest rates."

Consumers' 12-month inflation expectations fell to 5.7% from 5.9% in October, likely reflecting news this month that inflation subsided in October. This is welcome news for the U.S. central bank after the University of Michigan's consumer survey last week showed long-term inflation expectations rising in November to levels last seen in 2011.

The share of consumers in the Conference Board survey expecting higher interest rates was the smallest since April 2021, while the proportion anticipating lower borrowing costs was the largest in nearly three years. The cooling inflation backdrop has left financial markets anticipating a rate cut from the Fed in mid-2024, according to CME Group's FedWatch Tool.

Those expectations got a boost from comments by Fed Governor Christopher Waller on Tuesday that "if we see disinflation continuing for several more months ... you could then start lowering the policy rate just because inflation's lower."

Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. U.S. Treasury prices rose.

RISE IN BUYING PLANS

Since March 2022, the Fed has hiked its policy rate by 525 basis points to the current 5.25%-5.50% range.

Amid signs that inflation was abating, consumers appeared more keen to step up spending over the next six months. The survey showed an increase in the share of consumers intending to buy motor vehicles and major household appliances like refrigerators, washing machines and televisions sets.

While there is no strong correlation between confidence and consumer spending, the rise in buying intentions suggests that consumers should continue to underpin the economy. Data from Adobe Analytics suggest that online consumer spending jumped 7.8% during Cyber Week, or the five days from Thanksgiving through Cyber Monday, outstripping expectations for a  5.4% rise.

Consumer spending remains supported by a resilient labor market. Though job growth has moderated, labor market conditions remain fairly tight by historical norms. The Conference Board's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, widened slightly to 23.9 this month from 23.8 in October.

This measure correlates to the unemployment rate in the Labor Department's closely followed employment report. More people, however, reported that jobs were getting harder to find, a potential sign of looming labor market weakness.

The survey also showed more consumers planned to buy a house over the next six months. They, however, could run into affordability challenges as rates above 7% on the popular 30-year mortgage and an acute shortage of properties for sale inflate the cost of buying a home.

A second report from the Federal Housing Finance Agency on Tuesday showed annual home price growth accelerated again in September, largely reflecting the dearth of previously owned houses. House prices surged 6.1% on a year-on-year basis in September, the largest gain since December, after rising 5.8% in August. Prices increased a solid 0.6% month-on-month after advancing 0.7% in August.

"We expect to see some weakness in home prices in fourth quarter and early next year, as sellers need to make some concessions to attract buyers," said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York. "However, we expect that a limited supply of homes for sale will continue to keep a floor under prices."

(Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci)