- The Washington Times - Tuesday, July 27, 2004

Consumer confidence surged to a two-year high this month as Americans took note of the steadily improving job market, the Conference Board reported yesterday.

Job gains have averaged about 200,000 a month this year after three years of job losses. But consumers — distracted by record-high gasoline prices and problems in Iraq — were slow to notice the trend until gas prices eased this month.

The better job prospects have helped to keep home sales at record levels despite higher interest rates. New-home sales stayed just shy of a record annual rate of 1.33 million last month, the Commerce Department reported yesterday, while existing-home sales jumped to a new high of nearly 7 million.

Double-digit gains in home prices in Washington and other areas have helped to bolster confidence while increasing household wealth and purchasing power.

And while the surge in home sales since March partly reflects a rush to market by buyers locking in low mortgages rates, it also is one of the most concrete ways consumers can show optimism that their personal finances and the economy are holding up.

“U.S. households are displaying tremendous confidence in future economic conditions by their willingness to enter into the housing market” and make what for most people is the largest investment decision of their lives, said John Ryding, chief U.S. economist at Bear Stearns & Co.

Hopes that the brightening consumer outlook will help lift the economy out of a soft patch prompted by high gas prices this spring sparked rallies on Wall Street yesterday and sent the dollar up against other major currencies.

The Dow Jones Industrial Average jumped 123 points to 10,084, while the Nasdaq Composite Index added 1.6 percent to 1,869.

The sea change in confidence gives a boost to President Bush’s re-election prospects. Analysts note that the New York business research group’s confidence measure often closely tracks public approval of the president’s handling of the economy, which has been rising in recent opinion polls.

More Americans approved of President Bush’s handling of the economy last week than at any time since January, according to a poll by The Washington Post and ABC News. Mr. Bush’s approval rating was 47 percent, while presumptive Democratic nominee Sen. John Kerry received a 46 percent approval rating.

“With all eyes on the Democratic convention in Boston, President Bush got some encouraging news from the economic front” with the surge in the confidence index to 106.1 from 102.8 in June, said Edward Yardeni, chief investment strategist with Prudential Equity Group.

He noted that confidence now is close to the level it was at when President Clinton won re-election in 1996. By contrast, the index was at half the current level when presidents Jimmy Carter and George Bush lost their re-election bids in 1980 and 1992, respectively.

“Any time the numbers are over 100, it’s very good for an incumbent,” said Delos Smith, a Conference Board economist.

Other signs have not been as promising for the president, however. The stock market, often a reliable predictor of an incumbent president’s re-election prospects, until yesterday had been drooping toward new lows for the year.

While consumer confidence can be a harbinger of election results, it is not always a close barometer of consumers’ buying behavior. Gains in confidence in the past four months, for example, came at a time of significant retrenchment in consumer spending.

Also, in a potential threat to consumer confidence and spending in the future, oil prices continued to climb toward a record in New York trading yesterday. The price of premium crude rose 40 cents to $41.84 — just shy of the record high of $42.45.

Still, many on Wall Street took hope from yesterday’s report that consumers will resume their free-spending ways in the summer quarter and give the economy a fresh spurt of growth in the second half of the year.

“The consumer is in pretty good shape,” said Scott Pape, an asset manager at CastleArk Management LLC. “There are a handful of signs that July has seen a snapback both on the consumer and industrial side.”

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