Consumer confidence edged up, spending rises and home sales jump

By Jeannine Aversa

Associated Press

WASHINGTON — Consumer confidence nudged up, shoppers opened their pocketbooks wider and sales of previously owned homes jumped, suggesting that the nation’s economic recovery remains on track.

The Conference Board reported Tuesday that its Consumer Confidence Index rose to 109.8 in May, up from a revised 108.5 in April.

Another report released by the Commerce Department showed that consumers increased their spending by 0.5 percent in April, on top of a 0.3 percent advance the month before.

Although Tuesday’s confidence and spending figures were weaker than many analysts were expecting, economists said they were still encouraged that consumers will continue to spend in the months ahead – although probably at a modest pace – and help along the recovery.

In a third report, sales of existing homes shot up to a rate of 5.79 million in April, a 7 percent increase over March’s level, according to the National Association of Realtors. April’s performance marked the third highest monthly sales pace on record.

“It looks like consumers will keep the recovery on track,” said Richard Yamarone, economist with Argus Research Corp. “Consumers didn’t toss in the towel during the recession, and we don’t see any reason for them to do so now.”

But on Wall Street, stocks sagged as investors were hoping for stronger showings on consumer confidence and spending. The Dow Jones industrial average lost 111 points and the Nasdaq index was off 26 points in morning trading.

Consumers, whose spending accounts for two-thirds of all economic activity in the United States, especially splurged last month on big-ticket items, such as cars. Low interest rates and discounts on a range of costly manufactured goods continue to motivate buyers.

Americans’ incomes – including wages, interest and government benefits, went up 0.3 percent in April, matching analysts’ expectations.

In March, consumer spending rose 0.3 percent, while incomes grew by 0.4 percent.

Federal Reserve Chairman Alan Greenspan has warned that the recovery could be less than sizzling because consumers, who kept buying throughout the slump, might not have a lot of pent-up demand coming out of it.

Citing uncertainties about the vitality of the recovery, the Fed earlier this month decided to leave short-term interest rates unchanged at 40-year lows. Economists predict policy-makers will continue to hold rates steady through the summer.

That should motivate consumers to continue buying and businesses to step up investment, which would help the economic recovery.

Many economists believe the economy, which grew at a brisk 5.6 percent pace in the first quarter, slowed to a rate of around 3 percent to 3.5 in the current quarter, a still respectable pace. Part of that expected slowdown may come from less enthusiastic shoppers, analysts say.

Retailers and other companies – concerned about how much energy shoppers have left in them – have continued to discount merchandise and offer other incentives and promotions to buoy sales.

In April, consumer spending on big-ticket durable goods, such as cars and appliances, rose 1.4 percent. In March, consumers cut back spending on these items by 0.2 percent.

Spending on nondurable goods, such as clothes and food, went up 0.8 percent in April, up from a 0.2 percent rise. Spending on services rose 0.2 percent in April, down from a 0.5 percent advance the month before.

Disposable incomes – income after taxes_ grew 0.3 percent in April, after a 0.5 percent increase.

Because disposable incomes grew less quickly than spending in April, the nation’s personal savings rate, which is savings as a percentage of after-tax income, dipped slightly to 2.8 percent, from 3 percent in March.

Consumers continued to spend in April despite the fact that the nation’s unemployment rate hit a nearly eight-year high of 6 percent that month. Many economists predict the jobless rate will move as high as 6.5 percent by June because companies will be slow to hire back laid-off workers.

Some analysts are worried about how consumers will hold up as the jobless rate rises. That’s another reason analysts expect the Fed will keep interest rates steady through the summer.