US consumers and investors became more optimistic in May as a rising stock market provided a buffer from the first drop in home values in 16 years, according to reports published on Tuesday. The Conference Board's index of consumer confidence rose to 108.0 in May from 106.3 in April. That was well above a low of 78.8 just after the start of the war in Iraq, but far beneath highs near 145 reached at the tail end of the Internet boom.
"All in all, confidence levels continue to suggest growth, albeit at a slow pace," said Lynn Franco, director of the private firm's Consumer Research Center. Separately, a UBS/Gallup index of investor optimism jumped over 20 points in May to 95, its highest since January. Record gasoline prices were keeping a lid on confidence however, the two surveys said. Fifty-one percent of investors told UBS/Gallup they planned to cut back on driving this summer.
Another drag on confidence came from housing, where an ongoing slump has resulted in lower prices, a challenge for homeowners who have grown used to borrowing against the elevated values of their properties. Prices of existing US single-family homes fell in the first quarter compared with a year earlier, the first such decline since 1991, according to Standard & Poor's/Case Shiller.
The quarterly index dropped 0.7 percent from the fourth quarter of 2006 and was down 1.4 percent from the first quarter of 2006. Detroit and San Diego posted the biggest annual declines, at 8.4 percent and 6.0 percent, respectively.
"The fall of the national index into negative territory, after more than 15 years of positive annual growth, is a reaffirmation of the pullback in the US residential real estate market," said Robert Shiller, chief economist at MacroMarkets.
Things did not seem likely to get better in the foreseeable future, with the Conference Board's home-buying intentions index falling for the third straight month in May.
For those owning stock, the markets offered some solace. The rally showed no sign of abating, with the Dow Jones industrial average up 0.2 percent on the day and not far beneath last week's record high. Confidence measures provide some guidance to economists on broad trends in consumer spending, which accounts for two-thirds of US economic activity. Still, retail sales and sentiment are weakly correlated from month to month.