U.S. consumer confidence probably rose for a second straight month in May as payrolls expanded, and April resales of houses are forecast to have held at the second- highest pace on record, surveys of economists show. The New York-based Conference Board's gauge of sentiment increased to 94 this month, the highest since January, compared with 92.9 in April, according to the median forecast of 60 economists surveyed by Bloomberg News. The index averaged 103 during the record expansion from 1991-2001.
Job gains in March and April totaled 625,000, the most for two months since early 2000, and regional manufacturing surveys show employment improving in May. Payroll growth may prevent shoppers from being deterred by record gasoline prices, rising interest rates and concerns about the U.S. presence in Iraq. ``The consumer will continue to spend,'' Tim Rogers, chief economist at Briefing.com in Boston, said. ``Increasing employment and increasing incomes will fill in for the negative influences on the consumer.'' The National Association of Realtors in Washington may report that 6.45 million houses were resold in April at an annual rate, compared with 6.48 million the month before. The March pace was second to the record 6.68 million in September, and the pace already has exceeded 6 million for nine months.
Forecasts for higher borrowing costs rates may be encouraging some people to buy homes sooner. The average rate on a 30-year mortgage has risen by almost a percentage point from a nine-month low of 5.38 percent reached in March. The reports are set for 10 a.m. Washington time.
Labor Market Gains
Payroll gains last month followed a jump of 337,000 in March that was higher than previously reported, the Labor Department said earlier this month. The two-month increase was the biggest since March-April 2000. A regional survey showed more manufacturers were hiring than at any time in the last 31 years, a report last week from the Federal Reserve Bank of Philadelphia showed. A comparable report from the New York Fed bank showed manufacturing employment in that state also accelerated. The positive influence on consumer sentiment from a stronger job market was probably tempered by rising gasoline costs, a jump in interest rates and mounting casualties in Iraq, according to Rogers and other economists.
Gasoline Prices
The average retail price for a gallon of regular gasoline rose to a record $2.064 as of yesterday, figures from the Energy Department show. The rate on a 30-year fixed mortgage rose to an eight-month high of 6.34 percent two weeks ago, almost one percentage point higher than in March, amid signs of stronger growth and rising inflation. The boost to incomes as employment strengthens will outweigh the effects of higher gasoline costs, according to Susan Hering and James O'Sullivan, senior economists at UBS Securities LLC. The increase in oil costs, if maintained, will subtract about $35 billion from after-tax income this year, according to a report they issued Friday. A 200,000 increase in payrolls a month on average for the year will boost incomes by $71 billion, they forecast. ``Rising gasoline prices are a negative, but the stronger- than-expected rebound in employment is a big positive,'' O'Sullivan said in an interview. Concerns about mounting casualties in Iraq and photos and videos of U.S. service members abusing prisoners in Abu Ghraib prison may also have restrained confidence.
AutoNation, Wal-Mart
``I think consumer sentiment is overall fine other than the global situation, which has everyone concerned how that's going to unfold,'' Michael Jackson, chief executive of AutoNation Inc., said in an interview last week. The Fort Lauderdale, Florida, company is the largest U.S. retailer of new and used cars. If you put the negatives in the context of ``a better economy with job growth, I think that'll balance it out and it'll be relatively neutral for the car market,'' Jackson said. Sales industry wide will probably rise 2 percent to 5 percent this year compared with last, he said.
Wal-Mart Stores Inc., the world's largest retailer, said today that May sales are rising within its expectations for a gain of between 4 percent and 6 percent from a year earlier, boosted by demand for electronics and groceries. More consumers visited stores, and the average amount spent on each transaction increased, Wal-Mart said. Earlier this month, the Bentonville, Arkansas, company had reported that rising gasoline prices were siphoning $7 a week from its customers' pocketbooks. Consumer spending, which accounts for 70 percent of the economy, will expand 3.9 percent this year, the most since 2000, according to the median estimate in a separate Bloomberg News survey earlier this month. The improvement will contribute to a 4.6 percent increase in total economic growth, the best performance in two decades, according to the median forecast.///www.bloomberg.com