Economic Watch: Consumer Sentiment Soars, New Home Sales Drop

Consumer confidence reached its most favorable level this month since the last cyclical peak was set in January 2007, according to the Thompson Reuters/University of Michigan Survey of Consumers, released just before Christmas.

It increased 5.4% in December from the month before to 93.6, which is 13.5% higher than the same time a year ago. Separate measures of consumer expectations and their confidence in current conditions increased, posting month-over-month gains of 8.1% and 2%, respectively.

“Consumers have much to be thankful for in this holiday season -- renewed job growth, larger anticipated wage gains, and the steep decline in gasoline prices,” said Richard Curtain, survey director. “Importantly, rather than basing their renewed optimism on volatile oil prices, consumers have become convinced that growing strength in the national economy will result in continued gains in jobs and wages in the year ahead.”

Overall, the data points toward a gain of about 3% in real consumer expenditures during 2015, according to the survey.

Single-Family Home Sales

Meantime, a separate report from the U.S. Commerce Department, released the same day, shows sales of newly built, single-family homes dropped 1.6% in November from a revised October level to a seasonally adjusted annual rate of 438,000 units, the lowest level since July.

“Sales have held in a relatively stable range during the past four months,” said National Association of Home Builders Chief Economist David Crowe. “As the labor market and broader economy continue to strengthen, we can expect the housing sector to gain momentum heading into next year.”

Regionally, new home sales rose 14.8% in the West. Sales dropped 12% in the Northeast, 6.3% in the Midwest and 6.4% in the South.

“[The] report continues to support the Federal Reserve's ‘slow’ assessment of the housing market,” said Sterne Agee Chief Economist Lindsey Piegza. “Despite noticeable improvements in the labor market, consumers are still struggling with minimal income growth, dilapidated savings, and in some cases, limited access to credit, all restraining home purchases. While consumers may be out spending the extra cash savings from low gas prices, there isn't enough savings, however, to accommodate large-ticket purchases such as homes.”