Americans are more optimistic that the job market is healing and will deliver higher pay later this year. That brighter outlook, along with rising home prices, cheaper gasoline and a surging stock market, could offset some of the drag from the recent tax increases and government spending cuts.
A gauge of consumer confidence rose in April, reversing a decline in March, the Conference Board, a private research group, said Tuesday. The board attributed the gain to optimism about hiring and pay increases. Economists also cited higher home values and record stock prices.
Despite the rise in the index, to 68.1 from 61.9 in March, confidence remains well below its historic average of 92. Still, the increase signaled that consumers, whose spending drives about 70 percent of the economy, see better times ahead.
A separate report Tuesday showed that home prices nationwide rose in February by the most in nearly seven years. The Standard & Poor’s/Case-Shiller 20-city home price index jumped 9.3 percent in February from a year earlier. Prices in all 20 cities rose on an annual basis for a second straight month.
Phoenix led all cities with a year-over-year price gain of 23 percent. Floyd Scott, owner-broker at Century 21 Arizona Foothills in Phoenix, said demand is particularly strong for homes priced below $300,000.
Because of a tight supply, homes for sale are routinely receiving multiple offers, he said. That’s driving prices up.
“Now the job market is starting to improve, so younger adults are moving out and either getting an apartment or a house,” he said.
The reports were released the same day the Federal Reserve’s policymaking committee began a two-day meeting. Analysts expect the Fed to announce Wednesday that it will maintain its low-interest-rate policies, which include an $85-billion-a-month bond-buying program. The Fed’s bond purchases are intended to keep interest rates low to spur borrowing, spending and investing. Its policies have helped keep loan rates at record lows.
Big changes in government policy have caused sharp swings in consumer sentiment in recent months. Social Security taxes rose 2 percentage points Jan. 1. That lowered incomes for a typical household earning $50,000 by about $1,000 this year. A household with two highly-paid workers has up to $4,500 less.
And the across-the-board government spending cuts that began taking effect March 1 forced many federal agencies to furlough workers, which reduced their incomes. Government contractors are also likely to reduce jobs in response to the government cuts.
Yet consumers have shown resilience. Economists note that on top of higher home values, record stock prices have boosted household wealth. On Monday, the Standard & Poor’s 500 stock index closed at its highest level ever. Consumers who feel wealthier tend to be more confident and more willing to spend.
And employers have added an average of 188,000 jobs a month in the past six months, up from 130,000 in the previous six. Job gains slowed in March to only 88,000. But most economists expect at least a modest rebound in coming months, including a gain of 160,000 for April.
Layoffs also sank to a record low in January. Fewer layoffs tend to make people feel more secure in their jobs and more willing to spend.
In addition, average gas prices nationwide have dropped 28 cents from their peak this year to $3.51 a gallon, according to AAA. AAA said gas could drop as low as $3.20 a gallon by mid-summer. The low point in 2012 was $3.33.
Economists caution that confidence typically fluctuates. Measures of consumer sentiment have yet to show consistent month-to-month increases.
“While expectations appear to have bounced back, it is too soon to tell if confidence is actually on the mend,” said Lynn Franco, the Conference Board’s director of economic indicators.
The Conference Board reported that Americans’ confidence in their future income has rebounded strongly after falling in January, when the higher Social Security taxes kicked in.
The number of Americans who expect their income to rise within six months is higher — slightly — than the number who think it will fall, the first time that’s been true since October.
That may be because wages have increased a bit recently. But it could also be because lower inflation has enabled Americans to stretch their paychecks further.
Pay picked up a bit in the first three months of the year, according to a third report Tuesday. The Labor Department said wages rose 0.5 percent from January through March. That’s better than the 0.3 percent gain in the preceding three months.
Over the past year, pay gains have been modest. Wages and salaries have risen only 1.6 percent in that time.
But inflation has been even weaker. The Fed’s preferred inflation measure rose only 1 percent in the 12 months that ended in March. That was down from 1.3 percent year-over-year inflation for both January and February.
“People who have jobs, their dollars go a little bit further than they would otherwise,” said Chris Christopher, an economist at IHS, a forecasting firm.