April 25, 2017 / 2:06 PM / 7 months ago

Consumer confidence slips; new home sales hit eight-month high

WASHINGTON (Reuters) - U.S. consumer confidence fell from a more than 16-year high in April, but a surge in new home sales to an eight-month high last month suggested underlying strength in the economy despite an apparent sharp slowdown in growth in the first quarter.

People cross Broadway with shopping bags in Manhattan, New York City, U.S. December 27, 2016. REUTERS/Andrew Kelly

The economy’s healthy fundamentals were also underscored by other data on Tuesday showing the biggest year-on-year increase in house prices in 2-1/2 years in February. Though consumer confidence slipped this month, it remained at a very high level and many households expected to buy big-ticket items like cars.

That would suggest an acceleration in consumer spending after a slowdown that likely helped restrain economic growth at the start of the of the year.

“The housing market continues to look quite good. Consumers also have more jobs and are getting higher wages, so they will likely increase their spending this year,” said Gus Faucher, chief economist at PNC Financial Services Group in Pittsburgh.

The Conference Board said its consumer confidence index fell to 120.3 this month from 124.9 in March, which was the highest reading since December 2000. The index in April was the second highest reading since 2000.

Consumers’ assessment of labor market conditions were slightly less favorable than in March. Still, the survey’s so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the second-highest since 2001.

That measure closely correlates to the unemployment rate in the Labor Department’s employment report. The survey also showed increases in the number of consumers planning to buy major appliances.

The dip in confidence is likely related to last month’s failed attempt by Republicans in the House of Representatives to pass legislation to repeal the Affordable Care Act, the 2010 healthcare restructuring popularly known as Obamacare.

That failure stirred concerns in financial markets about the difficulties the Trump administration might have in implementing other policies, including its plan to cut taxes.

“Consumer confidence is starting to reflect the realities of governing, not the hopes that the swamp will be drained,” said Joel Naroff, chief economist at Naroff Economic Advisors inHolland, Pennsylvania. “The failure to implement any real policy changes has made people a little more uncertain about what will actually get done.”

FILE PHOTO: A real estate sign advertising a new home for sale is pictured in Vienna, Virginia, U.S. October 20, 2014. REUTERS/Larry Downing/File Photo

U.S. financial markets were little moved by the data as investors focused on other issues, including negotiations for a short-term spending deal to avert a shutdown of the U.S. government early on Saturday.

The dollar fell to a 5-1/2-month low against the euro. U.S. stocks were trading sharply higher, with the Nasdaq Composite .IXIC hitting the 6,000 mark for the first time. U.S. Treasury prices fell.

STRONG HOUSING MARKET

In a separate report on Tuesday, the Commerce Department said new home sales jumped 5.8 percent to a seasonally adjusted annual rate of 621,00 units last month, the highest level since July 2016. New home sales were up 15.6 percent compared to March 2016. They have now increased for three straight months.

A tightening labor market, marked by a 4.5 percent unemployment rate, is boosting employment opportunities for young Americans and helping to support the housing market.

The strength of the housing market suggests that signs of a sharp moderation in economic growth in the first quarter are an aberration.

The Atlanta Federal Reserve is forecasting gross domestic product rising at a 0.5 percent annualized rate in the first quarter after increasing at a 2.1 percent pace in the fourth quarter. The government will publish its advance first-quarter GDP estimate on Friday.

While the inventory of new homes on the market in March increased to the highest level since July 2009, it is less than half of what it was at its peak during the housing boom in 2006.

“The country needs a lot more new home construction to alleviate the supply shortage versus a rising pace of household formations in the past couple years and a recent shift back in favor of homeownership from renting,” said Ted Wieseman, an economist at Morgan Stanley in New York.

Tight housing stock is pushing up prices. A third report on Tuesday showed the S&P CoreLogic Case-Shiller composite index of house prices in 20 metropolitan areas rose 5.9 percent in February from a year ago, the largest gain since July 2014, after advancing 5.7 percent in January.

Reporting by Lucia Mutikani; Additional reporting by Dan Burns in New York; Editing by Paul Simao

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