Retailers were given reason to cheer Tuesday as a pair of government reports found consumers in good spirits before the start of the year’s major shopping season.
Consumer confidence shot up to a near-record level in November, reported the Conference Board, a business research organization.
And sales of existing homes climbed 2.1 percent in October, to a record annual rate of 4.4 million, according to the National Association of Realtors.
The reports were viewed as important harbingers of the holiday shopping season, which traditionally accounts for about half of the retail industry’s annual profits. In addition, consumer spending accounts for two-thirds of the nation’s overall economic activity.
“Despite the market turbulence in the U.S. and Asia, consumer spending will continue to be healthy,” predicted economist Sung Won Sohn, of Minneapolis-based Norwest Corp. “The jobs picture is good, there are labor shortages across the country, interest rates are low and the stock market is still at a high level, so many consumers have significant wealth.”
The gain in home resales, which make up about 85 percent of all U.S. single-family housing sales, was strongest in the Midwest, where they rose 6.6 percent, just topping the 6.5 percent gain in the West. Resales fell 4.5 percent in the Northeast and were unchanged in the South.
The index of consumer confidence surged to 128.3 this month from 123.4 in October, well above what many economists had expected. That put the measure of consumer sentiment not much below the 28-year high of 130.2, set in September, the private survey group noted. The index operates from a base of 100 in 1985.
“There’s a good chance the 1997 shopping season will be strong,” said Asha Bangalore, economist at Northern Trust Co. After the 1987 stock market crash, she said, housing resales and confidence fell and then recovered. Unlike then, both indicators held up after last month’s market sell-off, she noted.
First Chicago NBD Corp. economists predict holiday sales will rise 5.7 percent this year, their strongest increase in three years. Other economists typically are forecasting gains of 4.5 percent to 5.5 percent.
In another part of the Conference Board survey, an index of consumers’ view of the current state of the economy surged to 158.9, its highest level since 1969, from 147.5. Another index, designed to measure their economic expectations for the next six months, rose to 107.9 from 107.3.
Sohn and Bangalore, however, voiced words of caution about the months ahead.
Although the share of consumers who said they plan to buy a major appliance or to take a family vacation in the next six months rose in November, a slightly smaller number said they were likely to buy a new car or a home.
“Auto sales have been a major exception in the brighter business outlook,” Norwest’s Sohn said. “Big-ticket items seem to have topped out. Some consumers are either turning cautious, or the pentup demand for new cars is declining.”
Bangalore predicted the fourth-quarter gross domestic product will show a slower annual growth rate of about 2.9 percent, against the 3.5 percent pace posted for the third quarter.
“The October consumption spending numbers were not so good,” she said. “We look for consumption spending to be up 2.4 percent in the fourth quarter compared to 5.7 percent in the last quarter. And we don’t expect a big improvement in net exports because the Asian crisis is working as a damper.”
