Last updated: November 27, 2012 8:13 pm

US growth hopes lifted by housing data

US housing prices have risen for a sixth consecutive month, confirming a faster- than-expected revival in the sector that could fuel economic growth.

The S&P/Case-Shiller home price index rose by a seasonally-adjusted 0.3 per cent in September and is up three per cent over the past year. The recovery has spread to some of the cities hit hardest by the housing crash, with prices up 1.4 per cent in Las Vegas, 1.1 per cent in Phoenix and 0.7 per cent in Detroit.

Rising prices in those cities could allow homeowners to regain enough equity to refinance their mortgages, spurring consumer spending and giving the historic low interest rates engineered by the US Federal Reserve new power to stimulate the economy.

“Demand for new and existing homes has risen while supply is very tight,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “You have to expect prices to rise.”

On a day of positive data for the world’s largest economy, consumer confidence also rose to its highest level in more than four years while US businesses increased their orders for durable goods. The figures suggest that consumers and companies are holding their nerve despite anxiety about the fiscal cliff, which would trigger tax rises and spending cuts in January and threatens to derail the country’s economic recovery.

The Conference Board, an industry group, said its index of consumer attitudes towards the economy rose to 73.7 in November, its highest since February 2008.

“Consumers don’t appear to be concerned about the fiscal cliff,” said Cooper Howes, US economist at Barclays. “They are not fully taking into account what could happen if there is no resolution and this is worrying . . . There was a downward shock in confidence over the debt ceiling debate in August last year, but this is much more severe. Americans could see a real hit to their disposable income.”

The survey questions consumers on perceptions of current business and employment conditions, as well as expectations for the next six months on the business environment, employment and income.

The improvement in confidence was due to the expectations component, which rose to 85.1 this month from 84 in October, while the present situation index was virtually unchanged at 56.6.

Perceptions of the employment prospects improved for the third consecutive month to its highest reading since 2008. Of those surveyed, 5.9 per cent of consumers planned to buy a home within six months, the highest reading since the end of the recession.

The New York Fed’s latest quarterly report on household debt and credit also showed consumers were feeling more confident about spending, with non-real estate household debt up 2.3 per cent to $2.7tn from the previous three months.

“The increase in mortgage originations, auto loans and credit card balances suggests that consumers are slowly gaining confidence in their financial position,” said Donghoon Lee, senior economist at the New York Fed. “As consumers feel more comfortable they may start to make purchases that were previously delayed.”

Separately, orders for non-defence capital goods excluding aircraft – considered a proxy for future business spending – rose 1.7 per cent last month. It was the first meaningful increase since May’s 2.3 per cent gain and followed a 0.4 per cent dip in September.

But capital goods shipments, which measure current activity, fell by 0.4 per cent in October in a fourth-consecutive monthly decline, pointing to a weak quarter for business investment.

Paul Ashworth, chief US economist at Capital Economics, said he did not anticipate a marked turnround in business investment until Congress reaches a resolution to avert the fiscal cliff. “More certainty surrounding fiscal policy could drive a rebound in business investment in the first half of next year as companies that had been holding back decide to spend again,” he added.

US President Barack Obama called on Tuesday for Republicans to support a $25bn stimulus measure for small businesses to hire extra workers. The measure that was first announced in last year’s White House budget proposal.

Overall bookings for durable goods – those meant to last at least three years – held steady in October following a downwardly-revised 9.2 per cent increase the previous month, which reflected a rebound in aircraft orders. Economists surveyed by Bloomberg had projected a 0.7 per cent drop.

Demand for machinery, primary metals and communications equipment increased while orders for cars, aircraft and computers fell.

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