U.S. consumers’ mood improved as 2013 drew to a close, with many optimistic about their future job prospects, while home prices rose again in October, though the pace of gains slowed.
The data releases provided more evidence of strength in the U.S. economy, which appears to have overcome headwinds caused by an autumn government shutdown, higher taxes and rising mortgage rates.
“Things still look pretty solid at the end of 2013. We had better GDP growth even though interest rates have gone up with the Fed,” said Gus Faucher, senior economist at PNC Financial Services, adding “2014 will be a better year with less fiscal drag.”
The rise in the Conference Board’s index of consumer attitudes to 78.1 in December brought it to within reach of levels last seen before a standoff in Congress over fiscal policy caused the government to shut down in October.
Consumers were optimistic about the present – the present situation index hit its highest level since April, 2008 – and the future, particularly the job outlook.
“Despite the many challenges throughout 2013, consumers are in better spirits today than when the year began,” Lynn Franco, director of economic indicators at The Conference Board, said in a statement.
A separate report showed the S&P/Case Shiller composite index of home prices in 20 metropolitan areas increased 13.6 per cent in October from a year ago, the strongest gain since February 2006.
Price gains on a monthly basis, however, slowed to 0.2 per cent from 0.7 per cent in September, suggesting higher mortgage rates have slowed home-buying activity.
Borrowing costs are expected to rise again next year as the Federal Reserve winds down its monthly asset purchases, which have helped suppress long-term interest rates since the program began 15 months ago.
“From a policy standpoint, the rebound in home prices has been a real win for the Fed,” said Mark Vitner, senior economist at Wells Fargo Securities.
But next year, “the housing market will likely have to stand on its own more. We might see slower price appreciation in 2014,” he said.
Even with higher borrowing costs, however, demand for accommodation is likely to keep supporting residential construction as it recovers from multi-decade lows.
A separate report Tuesday showed that business activity in the U.S. Midwest slowed in December for a second straight month, a sign that manufacturing activity in the region was cooling off. Employment in the sector retreated to its lowest since April.
Nationwide, manufacturing has recovered strongly over the second half of the year after contracting briefly in May.