- The Washington Times - Tuesday, July 25, 2006

NEW YORK (AP) — A steady job market helped consumers overcome their concerns over high energy costs in July, unexpectedly lifting a barometer of consumer sentiment, a report said yesterday.

But there are warning signs the optimism may be short-lived as shoppers face a barrage of concerns from a cooling housing market and rising interest rates to war in the Middle East.

Another monthly decline in home sales, which have been a source of confidence for consumers, also stoked concerns about the economy. The decline, however, was less than expected.

The National Association of Realtors reported yesterday that sales of previously owned homes and condominiums dropped 1.3 percent in June to a seasonally adjusted annual rate of 6.62 million units; analysts had expected sales to fall to 6.60 million units. It was the eighth time in the past 10 months that sales slipped, while home prices edged up at the slowest pace in more than a decade.

The New York-based Conference Board said yesterday that its confidence index rose to a better-than-expected reading of 106.5 from a revised 105.4 in June. Analysts had expected the index to fall slightly to 104.

“The employment situation is helping confidence hold at a decent level,” said Gary Thayer, chief economist at A.G. Edwards & Sons Inc. “Right now, consumers are happy that they have a job, and that at least most of the economy outside of housing is doing well.”

But he cautioned that overall, “there are some cracks in the foundation” and said that a dramatic downturn in the housing market or job market would be a problem for consumer spending.

Consumer confidence has been volatile this year, with the index posting declines both in February and May amid pessimism about the job market. This year’s overall performance is in line with the rebound seen since last November in the aftermath of last year’s Gulf of Mexico hurricanes, however.

The Present Situation Index, which measures how shoppers feel now about economic conditions, rose to 133 from 132.2. The Expectations Index, which measures consumers’ outlook over the next six months, edged up to 88.8 from 87.5 last month.

While Federal Reserve Chairman Ben S. Bernanke suggested last week that the series of interest rate increases — intended to combat inflation — may be nearing an end, high energy costs could drive up prices elsewhere and the Fed faces a tricky challenge of keeping inflation in check without derailing the economy.

Oil prices remain stubbornly high at near $74 a barrel, in part because of worries that the conflict between Israel and Hezbollah in Lebanon could draw in other countries in the Middle East and cause supply disruptions.

Although the job market remains healthy, energy costs have already helped to slow down the nation’s payroll growth in recent months. Some employers are taking a wait-and-see stance as they figure out where the economy is heading.

Economists will be closely watching the latest monthly employment snapshot from the Labor Department, scheduled to be released Aug. 4.

“The job market affects more people than the housing market,” Mr. Thayer said.

Energy costs have had a cumulative effect over the course of the year on shoppers, said Janet Hoffman, managing partner of the North American retail division of Accenture, a consulting firm. “Consumers are just starting to feel their shrinking disposable income.”

Stores have feared a slowdown in consumer spending in the second half, but the question is how deep.

The Consumer Confidence Index — derived from responses received through July 18 to a survey mailed to 5,000 households in a consumer research panel — showed that consumers remain uneasy. The figures released yesterday include responses from at least 2,500 households.

Consumers claiming conditions are “good” increased to 27.6 percent from 26.6 percent. However, those claiming conditions are “bad” also increased to 15.5 percent from 15 percent. Labor market conditions were little changed. Consumers saying jobs are “plentiful” increased to 28.6 percent from 28 percent,while those saying jobs are “hard to get” remained almost unchanged at 19.9 percent.

The outlook for the labor market was mixed. The percentage of consumers anticipating more jobs to become available in the coming months decreased to 14.4 percent from 15.6 percent in June. Those expecting fewer jobs, however, decreased to 16.7 percent from 17.3 percent.

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