WASHINGTON: US consumer confidence fell for a third straight month in October amid concerns about the short-term outlook for business conditions and job prospects, but remained at levels consistent with continued growth in consumer spending.
Other data on Tuesday (Oct 29) suggested lower interest rates were lending some support to the struggling housing market. Contracts to purchase previously owned homes jumped in September to their highest level in nearly two years and house prices increased solidly in August. A stabilising housing market could underpin consumer spending, which is the economy's growth engine.
"We see nothing in today's report to suggest consumers will pull the rug out from the economy with a reduction in their purchases that could slow the economy to a crawl," said Chris Rupkey, chief economist at MUFG in New York. "Consumer spending is likely to remain moderate going into 2020."
The Conference Board said its consumer confidence index slipped to a reading of 125.9 this month from an upwardly revised 126.3 in September. The index was previously reported at 125.1 in September. It was 12 points lower than its reading in October last year.
Economists polled by Reuters had forecast it rising to 128.0 in October. The survey's present situation measure, based on consumers' assessment of current business and labor market conditions, increased to 172.3 this month from 170.6 in September. But the expectations index drawn from consumers' short-term outlook for income, business and labor market conditions declined to 94.9 from 96.8 last month.
The survey was published as officials from the Federal Reserve began a two-day policy meeting. The Fed is expected to cut interest rates for the third time on Wednesday. The US central bank cut rates in September after reducing borrowing costs in July for the first time since 2008.
Consumer confidence has been declining, largely blamed on a 15-month trade war between the United States and China, which has thumped business sentiment, leading to a decline in capital expenditure that has contributed to a downturn in manufacturing. Still the confidence index remains relatively high.
"In the past, confidence declined steadily when the economy was headed toward recession," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "The index would need to be around 110 before it would send a stronger recession signal."
The dollar was trading lower against a basket of currencies, while US Treasury prices rose. Stocks on Wall Street were mostly higher.
MIXED LABOUR MARKET READINGS
The Conference Board survey's so-called labour market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, increased to 35.1 in October from 33.5 in September. That measure closely correlates to the unemployment rate in the Labour Department's employment report.
The share of consumers expecting more jobs in the months ahead fell to 16.9 per cent this month from 17.6 per cent in September, while those anticipating fewer jobs rose to 17.8 per cent from 15.4 per cent.
Consumers' buying plans were mixed in October. Plans to buy a home increased, but were little changed for major appliances. This would suggest a limited rebound in retail sales in October after they dropped in September for the first time in seven months.
Consumer's intentions to buy a home were supported by a separate report on Tuesday from the National Association of Realtors showing its Pending Home Sales Index, based on contracts signed last month, advanced 1.5 per cent to a reading of 108.7, the highest since December 2017.
Economists surveyed by Reuters had forecast pending home sales rising 0.9 per cent in September. Pending home contracts become sales after a month or two, and last month's increase suggested a rebound in existing home sales, which declined 2.2 per cent in September. Pending home sales surged 3.9 per cent in September from a year ago.
"It looks like the drop in mortgage rates relative to late last year has helped boost activity in the housing market," said Daniel Silver, an economist at JPMorgan in New York. "We think there will be additional increases in existing home sales in upcoming reports."
But a chronic shortage of homes for sale is constraining the housing market despite the lower mortgage rates. Builders continue to complain that a lack of land and labor is making it difficult to break more ground especially on homes priced below US$200,000, which are most sought after.
In September, home purchase contracts increased 2.6 per cent in the populous South. Contracts rose 3.1 per cent in the Midwest. They declined 1.3 per cent in the West and fell 0.4 per cent in the Northeast.
Separately, the S&P CoreLogic Case-Shiller national house price index increased 3.2 per cent from a year ago in August after rising 3.1 per cent in July. That was the first year-over-year acceleration in the rate of home price growth since March 2018.
"Persistently low mortgage rates have seemingly ended what might have otherwise been a home price race-to-the-bottom this late in our economic expansion," said Ralph McLaughlin, deputy chief economist at CoreLogic.