US consumer confidence improved in January despite a stock market rout and house prices accelerated in November, suggesting underlying strength in the economy despite a sharp growth slowdown in recent months. There are, however, signs the malaise from manufacturing and export-oriented industries is starting to filter into the services sector, with data on Tuesday showing activity in that vast sector hit a one-year low in January.
The Conference Board said its consumer confidence index rose to 98.1 this month from 96.3 in December as households shrugged off January's stock market sell-off and focused instead on a strengthening labor market. "Households remain quite upbeat about the economic prospects and, given the importance of consumer spending to overall domestic activity, the resiliency in household sentiment will be seen by the Federal Reserve as good news," said Millan Mulraine, deputy US chief economist at TD Securities in New York. Consumers remained optimistic about the labour market this month. The share of households anticipating more jobs in the months ahead increased 13.2 percent from 12.4 percent in December, while the proportion of those anticipating fewer jobs fell slightly.
Though the share of consumers expecting an increase in incomes rose to 18.1 percent from 16.3 percent last month, there was a slight increase in those expecting an income reduction. Other details of the report showed the proportion of consumers claiming jobs are 'plentiful' fell to 22.8 percent from 24.2 percent in December. However, fewer households believed jobs were 'hard to get,' a sign the labour market continued to tighten.
Labour market strength, marked by a 5 percent unemployment rate, prompted the Fed to raise interest rates in December for the first time in nearly a decade. The US central bank is due to announce its latest rate decision at 2 pm EST (1900 GMT) on Wednesday after a two-day policy meeting.
While stock market volatility has diminished the chances of another rate hike in March, economists expect the Fed will increase borrowing costs in June. A separate report showed the S&P/Case Shiller composite home price index of 20 metropolitan areas rose 5.8 percent in the year to November, adding to a 5.5 percent increase in October. House prices rose 0.9 percent in November from October on a seasonally adjusted basis. Home prices in Dallas, Denver and Portland, Oregon are now at record levels, the report showed.
Still, home prices nationally remain 4.8 percent below their record level from July 2006, before the housing market crash, although they have climbed 29.2 percent from their post-recession bottom in January 2012.
"While continued price increases will begin to impact affordability, they are necessary to encourage sellers to list their homes for sale," said Kristin Reynolds, a US economist at IHS Global Insight in Lexington, Massachusetts. "Improving demographics and higher incomes, in combination with moderate price appreciation and inventory expansion, are consistent with our expectation for continued balanced improvement in the housing market."
In a third report, financial data firm Markit said its flash US services PMI business activity index slipped to 53.7 this month in January, the weakest reading since December 2014, from 54.3 in December. While service sector firms continued to report improving domestic economic conditions and rising client demand this month, some suggested that spending cutbacks across the energy sector had a negative impact on their business activity. The survey also showed some firms complained the buoyant dollar remained a headwind to growth at the start of 2016.
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