Consumers regaining hope

NEW YORK – Even with unemployment still rising and home prices still slumping, Americans are getting their confidence back in the economy.

A widely watched barometer of confidence unexpectedly rose to the highest level since September, buoyed by an unexpected surge in the stock market, hopes that the job market might turn around and the belief that the worst of the recession is behind us. But don’t expect shoppers to buy expensive jeans and fancy furniture anytime soon.

“Consumers are not likely to spend just because they think things will get better,” said Mark Vitner, senior economist at Wachovia. “They will actually have to see them get better.”

As a testament to the economy’s challenges, a closely monitored housing index also released Tuesday showed home prices fell at the sharpest rate ever in the first quarter, though the drop-off was worse at the beginning of the quarter.

Meanwhile, Americans are grappling with an unemployment rate that’s expected to climb to 9.2 percent in May, up from 8.9 percent.

That has helped push shoppers to keep shopping at discount stores and cutting back on nonessentials.

Still, the Conference Board’s Consumer Confidence Index’s 14.1-point surge to 54.9, following another big gain in April, is encouraging. Economists surveyed by Thomson Reuters were expecting 42.3. In February, confidence levels had hit a new historic low of 25.3.

May’s confidence level is the highest since eight months ago, when it was 61.4. The levels are also closer to last May’s 58.1, though still far from healthy. A reading above 90 means the economy is on solid footing. Above 100 signals strong growth.

The consumer confidence is determined by a mail survey of a representative sample of 5,000 U.S. households from May 1 to May 19.

Much of the improvement in confidence came from the Expectations Index, which measures shoppers’ outlook over the next six months. That barometer climbed to 72.3 from 51.0 in April. Consumers’ assessment in the present situation, however, was still weak, rising to 28.9 from 25.5 last month. It also showed that shoppers were less pessimistic about the job market, even though it remains grim.

The confidence report offered encouraging news to merchants, after confidence plummeted to historic lows late last year.

Consumer confidence sank to 38.8 in October after the financial meltdown and stock market plunge, at that time the lowest level since The Conference Board started tracking the data. It has fallen even lower since then. But the recent two-month stock rally helped spur dramatic rebounds in April and May.

Meanwhile, better-than-expected earnings results from such retailers as Sears Holdings Corp. and Gap Inc. have offered some evidence that spending has begun to stabilize, with sales declines moderating.

Still, the retail business overall is weak, and economists don’t expect to see any modest recovery in spending until later this year.

While Gary Thayer, chief economist at Wells Fargo Advisors, was encouraged by May’s confidence report, he noted that confidence still has a way to go before shoppers go back to splurging. That can only happen when the job and housing markets start to turn around.