ReutersWASHINGTON (Reuters) — U.S. consumer confidence jumped to a near 16-year high in July amid optimism over the labor market while house prices maintained their upward trend in May, which could boost consumer spending after recent sluggishness.
The reports on Tuesday underscored the economy’s strong fundamentals, expected to keep the Federal Reserve on course to raise interest rates for a third time this year.
“This brightens the outlook for the economy as we enter the second half of the year,” said Chris Rupkey, chief economist at MUFG in New York. “We expect Fed officials will continue with their gradual pace of rate hikes secure in the knowledge that a confident consumer means that more spending is on the way.”
The Conference Board said its consumer confidence index surged to 121.1 this month, the second highest reading since 2000, from 117.3 in June. The rise in confidence came despite the healthcare impasse in Washington. The index hit a 16-year high of 124.9 in March.
The survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the strongest since 2001. This measure closely correlates to the unemployment rate in the Labor Department’s employment report and is consistent with continued reduction in labor market slack.
“That matches up well over time with actual labor market conditions and is a component of the Fed’s labor market conditions index,” said Ted Wieseman, an economist at Morgan Stanley in New York. “The latest gain indicates the unemployment rate is still falling to new lows.”
The labor market is near full employment, with the jobless rate at 4.4 percent. But the tightening labor market has struggled to generate strong wage growth, a frustration for both households and policymakers.