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Strong Economic Indicators Point To Higher Rates In Y2K
- Consumer confidence. Reaching the second-highest reading posted in 32 years, the Conference Board Consumer Confidence Survey's index rose to 141.4 in December, up from 137 in November and just shy of the 142.3 record in October 1968. Using a base index of 100 in 1985, the survey is a monthly measure of the public's confidence in the U.S. economy's health.
"Consumers are in very good spirits as the 20th Century comes to a close," says Lynn Franco, director of the Conference Board's Consumer Research Center.
"Healthy paychecks, continued low inflation, and continued job opportunities will keep the economic expansion on its record-breaking course," she added.
The board said some 17.6 percent of consumers surveyed look for even better economic conditions in the first six months of 2000, up from 17 percent in November. Only 4.9 percent expect business conditions to deteriorate, down from 5.7 percent in November. Only 10.4 percent expect fewer job opportunities over the next six months, down from 12.4 percent in November.
- Retail sales. Consumers spent 7.7 percent more at the nation's malls from Thanksgiving to Christmas this year, than they did last year, according to International Council of Shopping Centers.
The ICSC holiday report includes revenue from more than 3,600 stores in 70 regional malls nationwide. Music, video, home entertainment equipment and jewelry topped consumer shopping lists followed by footware and clothing, food, toys and sporting goods, stationery, cards and books and home furnishings and furniture.
"Retailers benefited from the strong stock market, high consumer confidence, and low unemployment this holiday season," said John Konarski, ICSC's senior vice president of research.
- Home sales. During what's historically the slow season for home sales, consumers were also buying homes at a record pace. In November consumers pushed sales up 6 percent from the month before and 1.4 percent from a year ago, according the the National Association of Realtors.
"Consumer confidence in the economy has not dwindled. Given the strong pace of existing single-family home sales this year, we expect this segment of the market will close 1999 at yet another all-time record high," said Dennis R. Cronk, NAR president.
Hefty consumer spending could urge the Fed to raise rates early next year and NAR chief economist James Smith to hedge on his forecast -- again.
Smith recently forecast mortgage rates would dip below 7 percent by the end of January, thanks to a large flow of capital into the United States from investors wishing to protect their money from possible Y2K disasters in their own countries. That was a revision of his original prediction at NAR's annual convention in Orlando in November. Then he said mortgage rates would fall below 7 percent by December.
BestRate.com sees both short and long term mortgage rates moving the other way.
- "With this much economic strength, the Fed may have to hike the short term yields which it controls by half a percent (rather than a quarter percent) in early February, followed by additional steps to prevent wage inflation from becoming a serious problem later in 2000," BestRate.com reported this week.
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