There is some good economic news on several fronts this week, according to a recent report from the California Association of Realtors (CAR).
Consumer confidence rose for the first time in four months, while mortgage rates began to reverse in the middle of last week, with the average 30-year fixed rate mortgage dropping back to the lowest levels in nearly two weeks, according to several sources.
Along with that, the latest inflation data signals a cooling trend, as Americans’ attitude towards the economy bounced back after declining for three straight months.
The bond market responded “favorably” to the signs and pushed rates down by more than 20 bps in eight business days, according to CAR.
The CAR report noted, “The moderation in rates in the last two weeks should motivate more buyers and sellers to enter the market and bump the momentum up a notch in the midst of the homebuying season.”
The Conference Board’s Consumer Confidence Index also rose 4.7 points in May to 102.0 from 97.5 in April. At the same time, the Present Situation Index, which measures consumers’ current assessment of business and labor market conditions, increased to 143.1 from 140.6 in April, and the Expectation Index jumped to 74.6 from 68.8 recorded in the prior month.
The Conference Board noted that its Consumer Confidence Index® rose in May to 102.0 (1985=100) from 97.5 in April, while the Present Situation Index—based on consumers’ assessment of current business and labor market conditions—increased to 143.1 (1985=100) in May from 140.6 in April.
Meanwhile, the Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—rose to 74.6 (1985=100) from 68.8 last month. Despite this improvement, for the fourth consecutive month, the Expectations Index was below 80, the threshold that usually signals a recession ahead.
“Confidence improved in May after three consecutive months of decline,” said Dana M. Peterson, chief economist at The Conference Board.
“Consumers’ assessment of current business conditions was slightly less positive than last month,” he said, but added, “However, the strong labor market continued to bolster consumers’ overall assessment of the present situation.
“Views of current labor market conditions improved in May, as fewer respondents said jobs were ‘hard to get,’ which outweighed a slight decline in the number who said jobs were ‘plentiful,” said Peterson.
“Looking ahead, fewer consumers expected deterioration in future business conditions, job availability, and income, resulting in an increase in the Expectation Index,” he continued. “Nonetheless, the overall confidence gauge remained within the relatively narrow range it has been hovering in for more than two years.”
The personal consumption expenditure price index (PCE) – the Fed’s preferred inflation measure—also rose 0.3% month-over-month and 2.8% year-over-year in April, said the CAR report. The core index, which excludes food and energy costs, increased 0.2% for the period and was in line with census expectations. While the latest report may not show much progress on the slowdown in inflation, it at least suggests that the price growth is cooling again rather than accelerating.
The CAR report said the bond market reacted somewhat positively to the news late last week, with the benchmark 10-year Treasury yield dropping five basis points after the release of the inflation index.
“The average 30-year fixed mortgage rates dropped 12 bps and moderated from the recent peak reached in the middle of the week after the news,” the report noted.
