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Consumer confidence up
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June 26, 2001: 11:08 a.m. ET
Consumer sentiment, durables orders, new home sales surprisingly strong
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NEW YORK (CNNfn) - U.S. consumer confidence surged, while durable goods orders and new home sales also rose, according to separate reports Tuesday, surprising signs of strength in the world's largest economy a day before the Federal Reserve decides whether or not to cut interest rates.
The Conference Board, a New York-based research group, said its monthly index of consumer confidence rose to 117.9 in June from May's revised reading of 116.1. Wall Street economists polled by Briefing.com had forecast a reading of only 114.5.
"Consumers are currently more optimistic than they have been all year regarding business and job prospects over the next six months," said Lynn Franco, director of the Conference Board's Consumer Research Center.
Separately, the Commerce Department said orders for durable goods -- expensive, long-lasting items such as cars and computers -- rose 2.9 percent in May after falling a revised 5.5 percent in April. Wall Street economists surveyed by Briefing.com had forecast a 0.4 percent decrease. Excluding volatile transportation-sector orders, durables orders rose 2.7 percent in May.
Finally, new home sales rose 0.8 percent in May to a seasonally adjusted 928,000 annual pace, the Commerce Department reported. Sales in April were revised to reflect a 4.5 percent decline to a 921,000 annual rate, a substantial change from the 9.5 percent decline and 894,000 annual rate originally reported. Analysts surveyed by Briefing.com expected home sales at a rate of only 900,000.
Together, the data show surprising strength in consumer confidence and the manufacturing sector, which has been hardest hit by an economic slowdown this year, leading to hundreds of thousands of job cuts. Job cuts, obviously, threaten to curtail consumer spending, which makes up two-thirds of the U.S. economy.
Economy 'not falling off the cliff'
"Certainly, we see some encouragement," said Anthony Chan, chief economist with Banc One Investment Advisors. "We see an economy that's still weak... but not falling off the cliff. The notion that we're not going to have a recession is confirmed by these numbers."
The Federal Reserve, the U.S. central bank, has cut short-term interest rates five times this year in an effort to keep consumers spending and the economy afloat. The Fed begins a two-day policy meeting Tuesday, and the durable goods data could make it more cautious when it comes to cutting rates again.
"It puts a little more pressure on the Fed to be somewhat moderate," Chan said. "If the Fed [cuts rates Wednesday by half a percentage point], [the data] put a little pressure on them to make this either their last or close to their last cut of the cycle."
Most economists polled by Reuters and CNNfn.com expect the Fed to cut interest rates by a quarter of a percentage point, from 4.0 percent to 3.75 percent, though a growing number expect a more aggressive half-point cut.
"Even though there are signs that the economy is starting to pick up steam again and that things probably have bottomed out, they'd be pretty safe with a [half-percentage-point] cut this time around," Marci Rossell, corporate economist at Oppenheimer Funds, told CNNfn's Market Call program.
U.S. stocks fell in early trade Tuesday, while interest-rate sensitive U.S. Treasury bond prices were little changed.
Autos, chips in demand
Despite the increase in May, durable goods orders were down 11.5 percent from May 2000 levels, when consumers and firms were gobbling up big-ticket items as the economy roared ahead.
Orders for automobiles and car parts in May jumped 7.4 percent, following a 3.1 percent decrease in April. Aircraft orders rose 2.9 percent in May following a 13.8 percent decline in the prior month. Semiconductor orders skyrocketed 35.3 percent in May, but that followed a 40 percent plunge in April, the government said.
Computers and communications equipment continued to struggle, and April's overall number was revised down from an already unexpectedly drastic 5.0-percent drop.
"The overall trend in orders is going to be south over time," said Alan Ruskin, research director of 4Cast Ltd. "I wouldn't use this as indicative of some impending recovery in the manufacturing sector."
Meanwhile, sales of new single-family homes posted their strongest sales rate since March. Low mortgage rates and largely unshaken consumer confidence have helped the housing sector weather the downturn in the overall economy. 
-- from staff and wire reports
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