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Consumer confidence index rises to 103.3 in August

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Labor market differential narrows to 16.4 from 17.1

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House prices fall on monthly basis in June

By Lucia Mutikani

WASHINGTON, Aug 27 (Reuters) - U.S. consumer confidence

rose to a six-month high in August amid optimism over the

economic outlook, but Americans are becoming more anxious about

the labor market after the unemployment rate jumped to near a

three-year high of 4.3% last month.

The better-than-expected reading in consumer confidence,

reported by the Conference Board on Tuesday, reflected improved

perceptions of business conditions over the next six months, and

the survey suggested the odds of a recession had continued to

decline.

Inflation expectations over the next 12 months were the

lowest since March 2020, which augurs well for a Federal Reserve

interest rate cut next month.

"This report supports a rate cut on both the decline in

inflation expectations and a softening labor market, but is not

so weak as to suggest a recession at this point," said Conrad

DeQuadros, senior economic advisor at Brean Capital.

The Conference Board's consumer confidence index increased

to 103.3 this month, the highest level since February, from an

upwardly revised 101.9 in July.

Economists polled by Reuters had forecast the index would be

little changed from the previously reported 100.3. Confidence

was higher among consumers aged 35 years and older.

The Conference Board's Expectations Index, based on

consumers' short-term outlook for income, business, and labor

market conditions, improved to 82.5 from 81.1 in July, the

second straight reading above 80. A reading below 80 usually

signals a recession ahead.

Consumers were, however, less upbeat about the labor market.

The share of consumers who viewed jobs as being "plentiful"

slipped to 32.8% from 33.4% in July. Some 16.4% of consumers

said jobs were "hard to get," up from 16.3% last month.

The survey's so-called labor market differential, derived

from data on respondents' views on whether jobs are plentiful or

hard to get, narrowed to 16.4, the narrowest since March 2021,

from 17.1 in July.

This measure correlates to the unemployment rate in the

Labor Department's monthly employment report. The unemployment

rate has risen for four straight months.

Consumers' 12-month inflation expectations dropped to 4.9%,

the lowest since March 2020, from 5.3% in July.

RATE CUTS COMING

Fed Chair Jerome Powell last Friday signaled rate cuts were

imminent in a nod to growing worries over the labor market.

Financial markets expect the U.S. central bank to kick off its

easing cycle next month with a 25-basis-point rate reduction,

though a half-percentage-point cut cannot be ruled out.

The Fed has maintained its benchmark overnight interest rate

in the current 5.25%-5.50% range for more than a year, having

raised the policy rate by 525 basis points in 2022 and 2023.

With job growth ebbing, consumers were more pessimistic on

their income prospects over the next six months.

The share of consumers expecting their incomes to increase

fell to 16.9% from 17.2% in July. The proportion anticipating a

decline rose to 12.7% from 11.6% last month.

Rising worries about finances weighed on buying plans for

the next six months. At face value that would suggest softer

consumer spending in the months ahead, but there is not a strong

correlation between confidence and spending.

Buying plans for motor vehicles fell as did those for major

household appliances. The share of consumers intending to

purchase a house was the smallest since early 2013.

Higher mortgage rates and home prices have pushed the dream

of owning a home out of the reach of many Americans.

But relief could be in sight as the reduced affordability

has increased the supply of homes on the market, helping to curb

house price inflation.

A separate report from the Federal Housing Finance Agency on

Tuesday showed single-family home prices dipped 0.1% on a

month-on-month basis in June after being unchanged in May. They

increased 5.1% in the 12 months through June, the smallest

year-on-year rise since July 2023, after advancing 5.9% in May.

New housing supply has surged to levels last seen in early

2008. The existing homes inventory has also risen to the highest

level in nearly four years.

An outright decline in house prices is, however, unlikely in

the absence of significant labor market deterioration.