WASHINGTON — Americans are more confident in the U.S. economy than at any point in the past five years, thanks to surging home values, a brighter job market and record-setting stock prices.
Stock averages on Tuesday extended the year’s explosive rally.
Further gains in consumer confidence could help the economy withstand the effects of higher taxes and federal spending cuts that kicked in this year. Spending by consumers drives about 70 percent of economic growth.
Consumer confidence jumped in May to 76.2, the Conference Board, a private research group, said Tuesday. That was up from a reading of 69 in April and is the highest level of confidence since February 2008, two months after the Great Recession officially began.
A separate report Tuesday showed that U.S. home prices jumped 11 percent in March compared with a year ago, the sharpest 12-month increase since April 2006. Prices rose year over year in all 20 cities in the Standard & Poor’s/Case Shiller home price index.
The reports helped fuel a rally on Wall Street. Traders were also encouraged by gains in overseas markets, especially in Japan and Europe.
Surging stock prices and steady home-price increases have allowed Americans to regain the $16 trillion in wealth they lost to the Great Recession. Some economists have said the increase in home prices alone could boost consumer spending enough to offset a Social Security tax increase that’s reduced paychecks for most Americans this year.
Thomas Feltmate, an economist with TD Economics, said cheaper gas has also helped consumers shrug off the higher Social Security tax.
And the Conference Board survey said consumers are also more optimistic about the next six months. That should translate into greater consumer spending, substantial growth in hiring and faster economic growth in the second half of 2013, Feltmate said.
The economy has added an average of 208,000 jobs a month since November. That’s well above the monthly average of 138,000 during the previous six months. The job growth has helped reduce the unemployment rate to a four-year low of 7.5 percent.
Some of the decline in unemployment is due to fewer people looking for work. The government counts people as unemployed only if they’re actively searching for a job.
The economy grew at an annual rate of 2.5 percent in the January-March quarter, up from a rate of just 0.4 percent in the October-December quarter. The fastest expansion in consumer spending in more than two years drove the economy’s growth.
Many economists think growth is slowing slightly in the April-June quarter to an annual rate between 2 percent and 2.5 percent. But many analysts say growth should strengthen in the second half of this year, boosted by the gains in housing and employment.
A key reason the Case Shiller index of home prices jumped in March was that a growing number of buyers were bidding on a tight supply of homes.
Builders are responding to the supply shortage by ramping up construction. Applications for building permits rose in April to the highest level in nearly five years.