Consumer confidence, home sales up

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(MoneyWatch) Reports out today show increases in consumer confidence and home sales, further evidence Americans are focusing more on an improving economy than the drastic, across-the-board "sequestration" cuts slated to take effect Friday.

The Conference Board Consumer-Confidence Index rose to 69.6 in February, the highest level in three months and an 11 point increase over January's 58.4. The rebound is the result of consumers coming to terms with the rise in payroll taxes which took place in January, according to Lynn Franco of the Conference Board.

"Consumer confidence rebounded in February as the shock effect caused by the fiscal cliff uncertainty and payroll tax cuts appears to have abated," says Franco, director of economic indicators at The Conference Board. "Consumers' assessment of current business and labor market conditions is more positive than last month. Looking ahead, consumers are cautiously optimistic about the outlook for business and labor market conditions. Income expectations, which had turned rather negative last month, have improved modestly."

Modestly is clearly the governing word here. Even with February's sharp rebound confidence remains relatively low -- generally when the economy is growing at a good rate, levels are at least 90. Also, analysts remain concerned that confidence could drop again, even if looming government budget cuts don't happen.

"The latest increase presumably reflects the upward trend in equity prices seen during the survey period, which has gone into reverse in recent days," says Amna Asaf of Capital Economics. "It is possible that confidence will drop back in the coming months. Since the cutoff date for this survey, which was mid-February, gasoline prices have risen by an additional 10 cents a gallon, while equity prices are below their five-year high levels."

However, the continuing recovery in the housing market may further boost that confidence. Last month, new-home sales jumped to the highest level since July 2008. With the month's supply of houses on the market at its lowest since March 2005, current home owners are also seeing a rise in home prices.

The Commerce Department said Tuesday that new-home sales rose nearly 16 percent in January to a seasonally adjusted annual rate of 437,000. The percentage increase was the largest in nearly 20 years. And December's sales were revised higher to 378,000 from 369,000.

Steady job creation and near-record-low mortgage rates are spurring more Americans to buy houses. In addition, the number of previously occupied homes for sale is at a 13-year low; all of which is increasing demand for new homes. In 2012, builders began construction on the most homes in four years.

Though new homes represent less than 20 percent of the housing sales market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the National Association of Homebuilders.

The increase in home building has helped boost construction hiring. The industry has gained 98,000 jobs since September, the best stretch since the spring of 2006.

Still, the increases in new-home sales are coming from depressed levels. Sales plummeted to a record low in 2011. And sales are still well below the 700,000 annual level economists considered healthy.

The Associated Press contributed to this report

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    Constantine von Hoffman is a freelance writer and writing coach. His work has appeared in outlets such as Harvard Business Review, NPR, Sierra magazine, Brandweek, CIO, The Boston Herald, TheStreet.com, CSO, and Boston Magazine.

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