US consumer confidence surged in February, with households slightly more optimistic about the job market to support economic recovery from the coronavirus pandemic amid declining new COVID-19 infections and expectations of additional money from the government.
The Conference Board poll on Tuesday also found that consumers are warming to overseas vacations, with fewer intentions of buying homes, cars and other items with big tickets over the next six months. Consumers also expected higher inflation. This fits in with economists’ predictions that demand will return to services of goods by the summer, when more Americans are vaccinated and price pressures rise.
In some quarters there are concerns that very accommodative fiscal and monetary policies will boost inflation this year. Federal Reserve Chairman Jerome Powell has downplayed these fears and cited three decades of lower and stable inflation.
On Tuesday, Powell told lawmakers that the Federal Reserve would keep interest rates low and continue to pump money into the economy through bond purchases, “at least at the current rate, until we make significant further progress toward our goals … which we really weren’t Manufacture “.
The Conference Board said its consumer confidence index rose from 88.9 in January to 91.3 this month. Confidence remains well below its high of 132.6 last February.
Economists polled by Reuters news agency had forecast the index would rise to 90. The deadline for the survey was February 11th and failed to fully capture the winter storm that wiped out power supplies in Texas or the easing of food restrictions in New York City.
“With additional fiscal relief and better progress on vaccination, sentiment should continue to rise,” said Ryan Sweet, senior economist at Moody’s Analytics in West Chester, Pennsylvania. “As we approach herd immunity, the pent-up demand will be released.”
A man plays the piano outside a restaurant while the coronavirus pandemic continues in Sarasota, Florida [File: Shannon Stapleton/Reuters]COVID-19 cases in the US have declined for the sixth straight week, with daily cases and hospital stays falling to their lowest levels since before the Thanksgiving and Christmas holidays. The vaccination rate is also increasing.
However, health experts have warned that coronavirus variants originally spotted in the UK, South Africa and Brazil could trigger another wave that threatens to reverse recent positive trends. The virus has claimed just over 500,000 lives in the United States, a little over a year since the pandemic hit the nation. President Joe Biden’s $ 1.9 trillion pandemic recovery plan is gaining momentum in US Congress.
Wall Street stocks fell as investors sold mega-cap growth stocks on valuation concerns. The dollar gained against a basket of currencies. US Treasury bond prices were higher.
The current situational measure of the survey, based on consumers’ perception of current business and labor market conditions, bounced back to 92.0 after three consecutive months, indicating that economic growth is accelerating. Retail sales soared in January, prompting economists to upgrade their first-quarter growth estimates from just 2.3 percent to an annualized rate of 6 percent.
Yet consumers remain cautious. The expectations index, which is based on consumers’ short-term outlook for income, business and labor market conditions, fell to 90.8 from 91.2 in January.
The survey’s so-called labor market differential, which is based on data on respondents’ views on whether jobs are plentiful or hard-to-find, rose from -2.5 in January to 0.7 this month. This measure is closely correlated to the unemployment rate recorded in the US Department of Labor’s latest employment report – and raised hopes for steady job growth this month.
The economy created just 49,000 jobs in January after 227,000 job cuts in December. This was the first drop in wages and salaries in eight months. Of the 22.2 million jobs lost during the pandemic, around 12.3 million jobs were restored.
People in protective masks shop in Macy’s Herald Square after the coronavirus outbreak in New York City, USA [File: Jeenah Moon/Reuters]The proportion of consumers who expect an increase in income fell from 15.8 percent in the previous month to 15.2 percent. The proportion expecting a decline fell from 15.5 percent in January to 13.2 percent.
However, the proportion of consumers who wanted to go on vacation in the next six months rose, especially overseas. Fewer consumers are expected to buy houses, automobiles and large appliances. Consumer inflation expectations rose from 6 percent in January to 6.3 percent over the next 12 months.
“We believe the change in expectations reflects a real feeling that consumers are facing higher inflation rates than the CPI seems to capture [consumer price index]”Said Conrad DeQuadros, Senior Economic Advisor at Brean Capital in New York.
The weakening of purchase intentions likely suggests a slowdown in sales caused by demand for more spacious accommodations for home offices and schools. Higher prices when supply is scarce could also slow home sales.
A separate report on Tuesday showed that S&P CoreLogic Case-Shiller’s property price index for 20 metropolitan areas rose 10.1 percent in December year over year. This is the biggest increase since April 2014, after rising 9.2 percent in November.
Robust house price inflation was confirmed by a third report that found the Federal Housing Finance Agency’s house price index rose 11.4 percent in December, after rising 11.1 percent in November. Prices rose 10.8 percent year over year in the fourth quarter, twice as much as in the same period in 2019 (5.4 percent).