Consumer confidence gains in February

Consumer confidence rose to its highest level in five-and-a-half years amid optimism that the nation's economy is creating enough jobs, a private research group said Tuesday.

The New York-based Conference Board said that its Consumer Confidence Index rose to 112.5, up from a revised 110.2 in January. Analysts had expected the reading to be 109.

The February index was the highest since August 2001, when the reading was 114, indicating that consumers will continue to fuel the nation's economic growth in the near future.

In a statement, Lynn Franco, director of The Conference Board Consumer Research Center, said that "improving present-day business conditions and an easing in the proportion of consumers claiming jobs are hard to get have combined to lift consumers' spirits."

"All in all, it appears that the pace of economic growth exhibited in the final months of 2006 has carried over into early 2007 and may have even gained a little momentum," she added.

The Present Situation Index, which measures how shoppers feel now about economic conditions, increased to 139.0 from 133.9. The Expectations Index, which measures consumers' outlook in the next six months, edged up slightly to 94.8 from 94.4 last month.

Economists closely monitor consumer confidence because consumer spending accounts for two-thirds of all U.S. economic activity

The upbeat report from the Conference Board came amid largely sober news about the global economy, which dragged down the stock market. In midmorning trading, the Dow Jones industrial average dropped 110.39, or 0.87 percent, to 12,521.87 as stock markets around the world slipped when worries rose that the U.S. and Chinese economies are cooling.

A warning from former Federal Reserve Chairman Alan Greenspan Monday that the U.S. economy may be headed for a recession also dampened investors' moods.

On Tuesday, the Commerce Department that orders for durable goods in January dropped by the largest amount in three months exacerbated worries about the U.S. economy, as did a Standard & Poor's index showing single-family home prices across the nation were unchanged in December.

The National Association of Realtors offered a more upbeat picture on the housing market, reporting on Tuesday that sales of existing homes rose in January by the largest amount in two years. Median home prices, however, declined for a sixth straight month.

The nation's retailers are counting on confident shoppers to fuel a spending rebound following a disappointing holiday season. A steady job market and a recovery in the stock market have helped boost overall consumer sentiment.

But a prolonged housing slump and sluggish job growth could derail consumer optimism and spending. A hot housing market had helped prop up spending, as shoppers tapped into rising home values for extra cash through home equity refinancing. And while the job market is still healthy, employers slowed hiring in January, pushing the unemployment rate to a four-month high.

The Federal Reserve, however, sees inflation as more of a threat to the economy than the housing slowdown and has signaled that further interest rate hikes were possible if inflation didn't ease. Those fears were only further confirmed last week when the government reported that inflation at the consumer level rose by a larger-than-expected amount in January as falling energy prices only partially offset increases in the cost of medical care, food and airline tickets.

Such a mixed bag of news has created "a bifurcated consumer," according to Janet Hoffman, managing partner of the North American retail division of Accenture.

"We have less affluent customers being increasingly cautious," said Hoffman, noting that worries about gasoline prices have been replaced by concerns about rising food prices. On the other hand, the more prosperous are benefiting from gains from the stock market, bonuses on Wall Street and an overall healthy job market, she said.

These economic factors are not dramatic enough to move consumer confidence significantly either way, said Michael P. Niemira, chief economist at International Council of Shopping Centers. He expects that consumer confidence will hover around the 110 range over the next few months.

"Consumers hang on to big visible headlines," said Niemira. "I think this is just more of the same."