By Lucia Mutikani
WASHINGTON (Reuters) -U.S. consumer confidence increased to a 16-month high in November amid optimism over the labor market, expectations for lower inflation and higher stock prices over the next year.
Part of the second straight monthly rise in confidence reported by the Conference Board on Tuesday likely reflected the outcome of the Nov. 5 election which returned Donald Trump to the White House and gave his Republican Party control of the U.S. Congress.
The Conference Board did not attribute the improvement to the election, but noted "that write-in responses about politics, including the November elections, surged to above 2020 levels."
"The increase in the headline likely was driven by euphoria among Republicans," said Samuel Tombs, chief U.S. economist at
Pantheon Macroeconomics. "The index also jumped in late 2016, when Mr Trump was elected for the first time, suggesting that the sample of households in the Conference Board survey leans more Republican than the population at large."
The Conference Board said its consumer confidence index increased to 111.7 this month, the highest since July 2023, from a revised 109.6 in October.
Economists polled by Reuters had forecast the index advancing to 111.3 from the previously reported 108.7.
The cut-off date for the survey was Nov. 18. It mirrored a similar increase in the University of Michigan sentiment survey, which was skewed towards Republicans.
"November's increase was mainly driven by more positive consumer assessments of the present situation, particularly regarding the labor market," said Dana Peterson, the chief economist at the Conference Board.
The rise in confidence was led by consumers under 35 years old. Confidence among consumers in the 35-54 age bracket fell slightly. It rose among all income groups, with the exception of those with annual incomes above $125,000 and consumers making less than $15,000. A record 56.4% of consumers expected stock prices to increase over the next year.
LOW INFLATION WISH
Consumers' average inflation expectations over the next 12 months dropped to 4.9%, the lowest since March 2020, from 5.3% in October. Nonetheless, high prices remain a concern, with consumers saying lower prices was their top wish for the new year. Frustration over inflation swept Trump to victory over Vice President and Democratic Party candidate Kamala Harris.
There are, however, concerns that the president-elect's economic policies could stoke inflation, and slow the pace of interest rate cuts next year.
Minutes of the Federal Reserve's Nov 6-7 policy meeting published on Tuesday showed officials appeared divided over how much farther they may need to cut rates. The U.S. central bank started lowering rates in September, having hiked them in 2022 and 2023 to combat inflation.
Trump on Monday said he would impose a 25% tariff on all products from Mexico and Canada, and an additional 10% tariff on goods from China, on his first day in office.
Stocks on Wall Street traded higher. The dollar gained versus a basket of currencies, lifted by Trump's tariff pledge. U.S. Treasury yields rose.
The survey's so-called labor market differential, derived from data on respondents' views on whether jobs are plentiful or hard to get, widened to 18.2 this month from 16.5 in October.
This measure, which correlates to the unemployment rate in the Labor Department's monthly employment report, was boosted by the highest optimism about future job availability in almost three years.
Economists were little concerned that fewer consumers planned to purchase big ticket items like motor vehicles and refrigerators, noting the strong labor market optimism.
"This bodes well for our outlook that consumer spending growth will remain solid in the coming year," said Grace Zwemmer, an associate U.S. economist at Oxford Economics.
Plans to buy a home over the next six months dropped sharply, likely reflecting a resurgence in mortgage rates and still-elevated house prices. A separate report from the Federal Housing Finance Agency showed house prices jumped 0.7% on a month-on-month basis in September after rising 0.4% in August.
The average rate on a 30-year fixed-rate mortgage soared to 6.72% by the end of October from a more than 1-1/2-year low of 6.08% in late September when the Fed began easing policy.
Mortgage rates are tracking the rise in the 10-year U.S. Treasury yields. The reversal in mortgage rates and hurricanes weighed on new single-family home sales, which plunged 17.3% to a seasonally adjusted annual rate of 610,000 units in October, the lowest level since December 2022, a third report from the Commerce Department's Census Bureau showed.
New home sales dropped 9.4% year-on-year in October. The median new house price increased 4.7% to $437,300 in October from a year earlier. The inventory of new homes climbed to 481,000, the highest level since early 2008, from 471,000 units in September. That could curtail new construction.
At October's sales pace it would take 9.5 months to clear the supply of houses on the market, up from 7.7 months in September.
"Housing demand has been depressed by mortgage rates picking up again," said Alice Zheng, an economist at Citigroup (NYSE:C).