Fed raises interest rate once again; consumer confidence improves.
Despite slower retail sales and inflation fears that prompted the Federal Reserve to raise interest rates again this week, consumers' expectations are on the rise. Here's a look at this week's economic developments and how they may impact your business.
Consumer Mood Brightens
While still wary of current economic conditions, consumers are expecting better times ahead, the Conference Board said on Tuesday.
The private research group's monthly expectation index for June, based on a survey of some 5,000 households nationwide, edged up to 87.6 from 85.1 last month.
The number of households expecting the economy to improve over the next six months rose to 16.8% in June from 16.5% the previous month, while those feeling things would get worse dropped to 11.8% from 12.9%, the survey showed.
"The slight bounce-back in confidence this month was a result of the moderate improvement in consumers' expectations," Lynn Franco, the group's director of consumer research, said in a statement. Yet despite the up-tick, consumers remained worried about the short-term outlook, Franco said, a sign the "economy is shifting into lower gear heading into the second half of this year."
The group's present situation index slipped for the second month in a row, falling to 132.7 from 134.1 in May, the report said.
Among the households polled, only 26.8% described current conditions as "good," compared to 28.5% the previous month.
Fed Raises Rates
The brighter mood didn't prevent the Federal Reserve from raising interest rates another quarter point this week to 5.25%, as economists widely expected.
"Recent indicators suggest that economic growth is moderating from its quite strong pace earlier this year," the Board of Governors said in a statement on Thursday.
The move, which the board said was prompted by rising energy prices and a cooling housing market, marked the 17th consecutive hike in the central bank's benchmark rate on overnight loans.
The rebound in consumer confidence has also yet to translate into better sales at retailers, the International Council of Shopping Centers and UBS said on Tuesday.
Weekly sales at U.S. chain stores were down 0.4% last week, though up 4.1% compared to the same week last year, the group reported.
Strong consumer spending in the first three months of the year boosted U.S. economic growth by a revised 5.6% -- the quickest pace in three years, the Commerce Department reported on Thursday.
The expansion in gross domestic product -- the total value of the nation's goods and services -- followed an increase of just 1.7% over the previous quarter, the report said.
The upswing in consumer spending, which rose by 5.1%, came despite a 2% gain in core prices, the report said.
New Home Sales Up
Amid a general downturn in the housing market, sales of new homes hit an unexpected five-month high in May, the Commerce Department reported on Monday.
Sales of new single-family homes rose 4.6% from April to over 1.2 million, though still 5.9% below the same period last year, the report said.
The median sales price in May was $235,300, while the average price was $294,300, the report said. At those prices, there were still 556,000 new homes on the market at month's end, enough to last for next 5.5 months under the current sales rate, the report said.
Meanwhile, existing home sales continued to fall, dropping 1.2% in May from the previous month and 6.6% below May 2005 -- the third decline in the last five months, the National Association of Realtors reported on Tuesday.
The number of unsold homes on the market rose 5.5% to 3.6 million, enough for a 6.5-month supply, the trade group said.
Despite the higher inventory, the median sale price for existing homes has climbed by 6% over the past 12 months to $230,000, the group said.
"We didn't break the 6-million sales barrier until 2003, so the current level of home sales is still pretty healthy by historic standards," NAR president Thomas Stevens said in a statement.
New Jobless Claims Increase
New claims for jobless benefits rose by 4,000 to 313,000 in the week ending June 24, the Labor Department reported on Thursday.
The largest increase in new claims was in California, New Jersey, Michigan, Maryland, and Wisconsin, the report said.