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WRAPUP 2-U.S. consumer confidence improves as COVID-19 cases fall; house prices accelerate

Lucia Mutikani
·4 min read

(Adds details, analyst comments, updates markets)

* Consumer confidence index rises to 91.3 in February

* Household employment measure rebounds

* House prices surge year-on-year in December

By Lucia Mutikani

WASHINGTON, Feb 23 (Reuters) - U.S. consumer confidenceincreased in February, with households slightly more upbeatabout the labor market amid declining new COVID-19 infectionsand expectations for additional money from the government tohelp the economy's recovery from the pandemic.

The survey from the Conference Board on Tuesday also showedconsumers warming up to overseas vacations, though fewerintended to purchase homes, automobiles and other big-ticketitems over the next six months. Consumers anticipated higherinflation as well. This fits in with economists' predictionsthat demand will swing back to services from goods by summer asmore Americans get vaccinated, and boost price pressures.

There are concerns in some quarters that very accommodativefiscal and monetary policy will ignite inflation this year.Federal Reserve Chair Jerome Powell has played down these fears,citing three decades of lower and stable inflation.

On Tuesday, Powell told lawmakers that the U.S. central bankwould keep interest rates low and continue to pump money intothe economy through bond purchases "at least at the current paceuntil we make substantial further progress towards our goals ...which we have not really been making."

The Conference Board said its consumer confidence index roseto a reading of 91.3 this month from 88.9 in January. Confidenceremains well below its lofty reading of 132.6 last February.

Economists polled by Reuters had forecast the index nudgingup to a reading of 90. The cut-off date for the survey was Feb.11 and did not fully capture the winter storm, which knocked outelectric power in Texas, or the easing of dining restrictions inNew York city.

"With additional fiscal relief coming and better progress onthe vaccination front, sentiment should rise further," said RyanSweet, a senior economist at Moody's Analytics in West Chester,Pennsylvania. "As we approach herd immunity, pent-up demand willbe released."

COVID-19 cases in the United States have declined for thesixth consecutive week, with daily cases and hospitalizationsfalling to the lowest level since before the Thanksgiving andChristmas holidays. The pace of vaccination is also picking up.

Health experts have warned, however, that coronavirusvariants initially discovered in Britain, South Africa andBrazil could unleash another wave that threatens to reverse therecent positive trends. The virus has claimed more than 500,000lives in the U.S. just over a year since the pandemic hit thenation. President Joe Biden's $1.9 trillion recovery plan fromthe pandemic is gaining traction in the U.S. Congress.

Stocks on Wall Street fell as investors sold off mega-capgrowth shares on valuation concerns. The dollar gained versus abasket of currencies. U.S. Treasury prices were higher.

CAUTION LINGERS

The survey's present situation measure, based on consumers'assessment of current business and labor market conditions,rebounded to a reading of 92.0 after declining for threestraight months, indicating a pick-up in economic growth wasunderway. Retail sales surged in January, prompting economiststo boost their first-quarter growth estimates to as high as a 6%annualized rate from as low as a 2.3% pace.

Still, consumers remain cautious. The expectations indexbased on consumers' short-term outlook for income, business andlabor market conditions slipped to 90.8 from a reading of 91.2in January.

The survey's so-called labor market differential, derivedfrom data on respondents' views on whether jobs are plentiful orhard to get, rose to a reading of 0.7 this month from -2.5 inJanuary. That measure closely correlates to the unemploymentrate in the Labor Department's employment report and raisedhopes for steady job growth this month.

The economy created only 49,000 jobs in January aftershedding 227,000 jobs in December, the first decline in payrollsin eight months. About 12.3 million jobs of the 22.2 millionlost during the pandemic have been recovered.

The share of consumers expecting an increase in incomedipped to 15.2% from 15.8% last month. The proportionanticipating a drop fell to 13.2% from 15.5% in January.

There was an uptick in the share of consumers planning to goon vacation over the next six months, but mostly overseas. Fewerconsumers expected to purchase homes, motor vehicles and majorhousehold appliances. Consumers' inflation expectations over thenext 12 months shot up to 6.3% from 6% in January.

"We believe the change in expectations reflects a real sensethat consumers are facing higher inflation rates than appear tobe being captured in the CPI," said Conrad DeQuadros, senioreconomic advisor at Brean Capital in New York.

The moderation in house-buying intentions likely points to aslowdown in sales, which have been powered by demand for morespacious accommodations for home offices and schooling. Higherprices amid tight supply could also slow home sales.

A separate report on Tuesday showed the S&P CoreLogicCase-Shiller 20-metro-area house price index soared 10.1% inDecember from a year ago, the largest gain since April 2014,after increasing 9.2% in November.

Robust house price inflation was confirmed by a third reportshowing the Federal Housing Finance Agency (FHFA) house priceindex jumped 11.4% year-on-year in December after rising 11.1%in November. Prices accelerated 10.8% in the fourth quarter froma year earlier, double the 5.4% logged in the same period in2019.

(Reporting by Lucia Mutikani, Editing by Franklin Paul andAndrea Ricci)