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Consumer confidence improves in January

January 30, 2007

Eileen Alt Powell,, AP Business Writer

Consumer confidence improved slightly in January on a strengthening job market, but consumers also appeared concerned that labor conditions could worsen, according to a survey released Tuesday by a private research group. The Conference Board said that its Consumer Confidence Index edged up to 110.3 in January from a revised 110.0 in December. Analysts had expected a reading between 110.0 and 110.5.

The reading was the highest in five years, suggesting that consumers will continue to be the engine behind the nation's economic growth in coming months.

The index, which is based on a survey of 5,000 U.S. households by the New York-based research group, is closely watched because consumer confidence often signals changes in spending trends. Consumer spending makes up about two-thirds of the U.S. economy.

Also Tuesday, an index released by Standard & Poor's showed that the prices of single-family homes across the nation rose in November at the slowest rate in more than a decade, a further sign that housing will be a drag on the economy.

The S&P/Case-Shiller composite index showed a 1.3 percent year-over-year rise in the price of a single-family home based on existing homes tracked over time in 10 metropolitan markets.

Anthony Chan, managing director and chief economist with JPMorgan Private Client Services in New York, said the figures "tells us that at the moment, the consumer is in a sweet spot thanks to improved labor market conditions and lower oil prices."

Still, he noted, consumers worry that the cooling housing market and other factors could lead to less-favorable job conditions in the future.

This should ease fears at the Federal Reserve, which is meeting Tuesday and Wednesday to review its economic policy.

"At the central bank, they're mainly concerned about the economy overheating," Chan said. "I think this report says they can sit and watch."

Investors continued to mark time before a Fed announcement on Wednesday. The Dow Jones industrial average rose 22.36, or 0.2 percent, to 12,513.14 in late morning trading. The S&P 500 index rose 4.49, or 0.3 percent, to 1,425.11 while the Nasdaq composite index rose 4.98, or 0.2 percent, to 2,466.07.

January's index reading on consumer confidence was the highest since 110.7 in March 2002 and matched a reading of 110.3 in May 2002, the Conference Board said.

Lynn Franco, director of the board's consumer research center, said the January increase was "fueled primarily by a more favorable job market."

She added, however, that "looking ahead ... consumers are not as optimistic as they were in December." As a result, the index suggests just "moderate improvement" in economic growth in early 2007.

Still, the report indicated that consumers were concerned.

The Conference Board's Present Situation Index, which measures how consumers feel about current economic conditions, rose to 133.9 in January from 130.5 in December. But the Expectations Index, which measures consumers' outlook over the next six months, dropped to 94.5 in January from 96.3 the month before.

The report said those anticipating business conditions to worsen rose to 8 percent from 7.8 percent while those who expected business conditions to get better decreased to 16.2 percent from 16.7 percent.

Asked if they expected their incomes to increase, 19.8 percent said "yes" in January, down from 21.4 percent in December

Coopyright 2007 Associated Press

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