Consumer Confidence, House Prices Offer Hope for Economy

Houses For Sale Ahead Of Existing Homes Sales Figures Release
Patrick T. Fallon/Bloomberg via Getty Images
By Ryan Vlastelica, Dan Burns and Rodrigo Campos

NEW YORK -- U.S. consumer confidence rebounded strongly in March amid optimism over the labor market while house prices increased in January, hopeful signs that a recent sharp slowdown in economic activity was probably a blip.

A combination of harsh winter weather, a now-settled labor dispute at the country's busy West Coast ports, softer global demand and a strong dollar dampened growth early in the first quarter.

The moderation in activity is a replay of early 2014, when an unseasonably cold winter caused a contraction in output, which was followed by a sharp rebound in growth.

%VIRTUAL-pullquote-Rising confidence and home prices adds to the belief that the first-quarter slowdown will be temporary.%"Rising confidence and home prices adds to the belief that the first-quarter slowdown will be temporary," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania.

The Conference Board said Tuesday its index of consumer attitudes rose to 101.3 this month from 98.8 in February. That was well above economists' expectations for a reading of 96.

While consumers were less optimistic about the short-term outlook, they had greater confidence in the labor market, with the share of those anticipating more jobs in the months ahead increasing significantly.

The proportion of consumers expecting income growth also rose solidly, which should help to underpin consumer spending.

Consumption, which accounts for more than two-thirds of U.S. economic activity, has been soft in the last three months, despite households receiving a massive windfall from lower gasoline prices. Some of the weakness has been blamed on harsh weather that kept shoppers at home.

"Consumers have emerged from the winter blues. If they spend anywhere as great as they feel right now, then this economy is going to roar over the next few months," said Chris Rupkey, chief financial economist at MUFG Union Bank in New York.

The dollar rose against a basket of currencies, while U.S. stocks fell after a sharp rally Monday. Prices for U.S. Treasury debt rose.

Weak First Quarter

First-quarter growth estimates range between a 0.8 percent and 1.2 percent annual pace. The economy expanded at a 2.2 percent rate in the fourth quarter.

Some economists believe that weak first-quarter growth could cause the Federal Reserve to delay an interest rate increase to later this year.

Richmond Fed President Jeffrey Lacker, however, said Tuesday that the U.S. central bank would have a "strong" case to tighten monetary policy in June, adding that transitory factors had weighed on growth in the first quarter.

A second report showed single-family home prices rose in January from a year earlier, in part boosted by a shortage of properties on the market.

The S&P/Case Shiller composite index of 20 metropolitan areas gained 4.6 percent in January on a year-over-year basis after rising 4.4 percent in December.

Housing has been sluggish amid a dearth of properties, as insufficient equity keeps potential sellers from entering the market. The reacceleration in home prices could see more houses put up for sale.

"This report signaled healthy home price growth -- strong enough to make current owners consider listing their homes, but slow enough to keep those homes within buyers' reach," said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts.

"This is an important development ahead of the spring selling season, and should provide upside support for inventory growth in the first half of the year."

For now, the economy remains in a soft patch.

In another report, the Institute for Supply Management-Chicago said its Business Barometer edged up to 46.3 from 45.8 in February. A reading below 50 indicates contraction in the region's manufacturing sector.

New orders contracted for a second straight month, while inventories rose sharply. Economists said the persistently weak readings suggested the strong dollar and weak global demand are acting as a drag on manufacturing.

"The manufacturing sector is more exposed than the non-manufacturing sector to the negative effects of dollar appreciation and weaker foreign growth," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

-With writing by Lucia Mutikani.

Does Your Home Live Up to the American Average?
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Consumer Confidence, House Prices Offer Hope for Economy
In 2013, the median lot size of a new sold single-family house was 8,596 square feet, or just under 0.2 acres. While that might not seem like a lot for you suburban homeowners, a regional breakdown shows that the small average size isn't due to urban inhabitants alone. The Northeast enjoys the largest average lot, at 13,052 square feet, while the less densely populated South and West lay claim to just 8,649 square feet and 6,796 square feet, respectively.
From a footprint of 1,650 square feet in 1978, the average American home has grown 50 percent, to 2,478 square feet. Yet tough times seem to be squeezing our expansionary attitude. Although new single-family homes sold in 2013 clocked in at a median 2,478 square feet, single-family homes completed in 2013 amounted to just 2,384 square feet. Homebuilder confidence has plummeted into pessimism in the last few months, hinting that the housing market's road to recovery might be rougher than expected.

While birth rates have held relatively steady for the past 40 years, everyone apparently needs more elbow room. The share of homes with four or more bedrooms has jumped from 27 percent in 1978 to 51 percent in 2013. And where would a bedroom be without a bathroom? While just 8 percent of 1978 homes had three or more baths, 37 percent of homes now fall in that category.

From 2008 to 2013, both the share of homes with four or more bedrooms and the share of homes with three or more bathrooms have jumped 10 percentage points, while median square footage is up 10.9 percent for the same period.

If there's one strong sign of new housing demand, it's home prices. After nose-diving during the Great Recession to a median sales price of just $216,700, home prices have been roaring back up. In 2013, the median sales price for a new single-family home was $268,900. But for those on the housing hunt, don't be discouraged. Home prices today still don't hold a candle to costs in 2006, according to the well-regarded Case-Shiller Home Price Index. In 2006, the index topped 200 before plummeting to less than 140, and current rates put the index just above 170.
It is America, after all. Our industrialized nation was built on the back of Henry Ford, and America is in no danger of breaking its automobile addiction. In 2013, a whopping 300,000 of the 429,000 new single-family homes sold included a two-car garage. And 98,000 new homes included a three-car garage -- the highest amount since 2007. Of all new homes built, only 10,000 failed to include a garage or carport.
American homebuyers are building bigger homes than ever before. But if there's one thing the recent recession has shown us, bigger isn't always better. Although 30 percent of Americans believe real estate is the best long-term investment, homeownership isn't for everyone. There are plenty of reasons to spend less or invest elsewhere -- and leave keeping up with the Joneses to Mr. and Mrs. Smith.
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