June confidence hits 5-year high

WASHINGTON - The Conference Board, a New York-based private research group, said Tuesday that its consumer confidence index jumped to 81.4 this month. That’s the best reading since January 2008.

The index is up from May’s reading of 74.3, which was revised slightly downward from 76.2.

“Unambiguously, the economy is showing signs of improvement despite sizable fiscal drag,” said Jim O’Sullivan,chief U.S. economist at High Frequency Economics in Valhalla, N.Y. Among the positives “has been the improving labor market, but in addition, wealth in general has been rising.”

Consumers’ confidence in the economy is watched closely, because their spending accounts for about 70 percent of U.S. economic activity.

The report shows consumers are more positive about current economic conditions and have a more optimistic view of the economy and job market in the next six months.

Lynn Franco, director of economic indicators at the Conference Board, said that “suggests the pace of growth is unlikely to slow in the short-term, and may even moderately pick up.”

Employers added 175,000 jobs in May, nearly matching the average monthly gain for the past year. That’s enough to slowly lower the unemployment rate. The rate ticked up to 7.6 percent last month but has fallen 0.6 of a percentage point in the past year.

More Americans see signs of hiring taking place. Nearly 12 percent describe the number of jobs available as “plentiful,” the most since September 2008.

And nearly 20 percent of consumers expect there will be more jobs in six months, while only 16.1 percent expect fewer jobs. That’s the first time those expecting more jobs have outnumbered those expecting fewer since February 2012.

Rising home prices are also likely making Americans feel wealthier and more confident about spending. Home prices jumped 12.1 percent in April compared with a year ago, according to the Standard & Poor’s/Case-Shiller home price index, also released Tuesday.

Slightly more consumers said they planned to buy a car in the next six months. The percentage saying they planned to buy a home also ticked up.

Americans have been resilient this year, despite a tax increase and government spending cuts. Consumer spending rose at the fastest pace in two years in the first three months of the year. That helped the overall economy grow at a 2.4 percent annual pace during the January-March quarter.

Economists forecast that overall economic growth is slowing to a 2 percent annual pace in the April-June quarter,in part because they expect consumers have eased up on spending from the robust first-quarter pace.

Despite the recent gains, the confidence index remains well below the 90 reading that indicates a healthy economy - a level it hasn’t reached since the recession began in December 2007.

So far, reports on consumer spending for the second quarter have been mixed. In April, consumer spending fell as income was unchanged. But spending appears to have rebounded in May, based on a preliminary report on retail sales. Americans spent more on cars, home improvements and sporting goods, boosting retail sales 0.6 percent.

The Commerce Department will release a more complete report on May consumer spending and income Thursday.

The Conference Board survey is conducted in the first half of the month, so the June report didn’t capture the effect of Federal Reserve Chairman Ben Bernanke’s comments last week after the Fed’s policy meeting.

Bernanke said the Fed could begin to slow its bond purchases by the end of the year. Since then, stocks have plunged and interest rates have spiked.

Orders for U.S. durable goods rose more than forecast in May, reflecting broad based gains that signal manufacturing is stabilizing.

Bookings for goods meant to last at least three years climbed 3.6 percent for a second month, the Commerce Department reported Tuesday. Excluding transportation gear, where demand is volatile month to month, orders advanced 0.7 percent, also topping projections.

Growing demand for cars and trucks and gains in home building are helping counter weakness in export markets, benefiting manufacturers such as BorgWarner Inc. and United Technologies Corp. Businesses may also decide to replace aging equipment, which will help bolster expansion in the second half of 2013.

“This is the missing piece for an upswing in economic activity,” said Millan Mulraine, director of U.S. rates research at TD Securities USA LLC in New York. “Business capital investment activity is off to a strong showing. If businesses start investing, they’ll add to their work force.” Information for this article was contributed by Lorraine Woellert and Alexandria Baca of Bloomberg News.