Consumer Confidence Rises to Near 5-Year High

Americans' confidence in the economy has inched closer to a 5 ½-year high, on growing optimism that hiring and wages could pick up in coming months.

The Conference Board, a New York-based private research group, said Tuesday that its consumer confidence index rose to 81.5 in August. That's up from a revised reading of 81 in July. And it's just below the 82.1 reading in June, which was the highest since January 2008.

Consumers' income expectations, which fell earlier this year after a January tax hike, rebounded to the highest level in 2 ½ years, said Lynn Franco, director of the Conference Board's economic indicators.

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Although consumers were more confident about the future, their assessment of the current economy dipped slightly in August.

"Consumer sentiment is holding steady, supported by advances in stocks, solid job creation, and a broad-based recovery in the housing market," Jim Baird, chief investment officer at Plante Moran Financial Advisors, wrote in a research note.

Consumers' confidence in the economy is watched closely because their spending accounts for about 70 percent of U.S. economic activity.

After hitting bottom at 25.3 at the depths of the Great Recession in February 2009, the index has bounced back. But it has yet to get back to the 90 reading that signals a healthy economy.

Americans' confidence jumped in June on hopes that the job market was starting to turn around. The economy has created an average of 192,000 jobs a month this year, slightly ahead of last year's pace. And the unemployment rate fell last month to a 4 ½-year low of 7.4 percent.

Still, unemployment remains painfully high four years after the recession officially ended. And employers added just 162,000 jobs in July, the fewest in four months. That raised worries that the sluggish economy could slow any progress made earlier in the job market.

The U.S. economic recovery has been held back this year by tax hikes, federal spending cuts and weaker global growth. The economy expanded at just a 1.7 percent annual rate in the April-June quarter. Most economists expect that figure will revised up to a 2.2 percent annual rate, mostly because of a jump in June exports.

The government issues its second estimate for second-quarter growth on Thursday. Most analysts predict growth may pick up to about a 2.5 percent annual rate in the second half of the year.

Still, recent data suggest the July-September quarter is off to a weak start, leading some economists to trim their third-quarter forecasts.

On Monday the government said orders for long-lasting U.S. factory goods fell sharply in July, in part because businesses cut back sharply on big purchases that signal investment plans.

And U.S. sales of newly-built homes dropped 13.4 percent last month to a seasonally adjusted annual rate of 394,000. That's the lowest level in nine months, raising worries that higher mortgage rates could slow the housing recovery.

Mortgage rates have risen sharply since May when Chairman Ben Bernanke first signaled the Federal Reserve could reduce its bond purchases later this year, if the economy strengthens. The bond purchases have kept long-term interest rates low, making home-buying, auto loans and other consumer loans cheap.

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