Consumers confident recovery on horizon

NEW YORK -- With the fighting all but over in Iraq, U.S. consumer confidence climbed in May to its highest level in six months.

The Conference Board reported Tuesday that while consumers are worried about current economic conditions, they feel a turnaround is only months away.

The news, coupled with a positive report on home sales, gave the stock market a boost, sending the Nasdaq to its best level in nearly a year. The Dow Jones industrials soared nearly 180 points to close at 8,781.

The board's Consumer Confidence Index rose to 83.8 in May from 81 the previous month, the highest level since November's reading of 84.9. Analysts were expecting a reading of 84 for May. The April index had soared 19.6 points from March after the quick end to the war in Iraq.

"The postwar euphoria experienced last month has quickly given way, and consumers' focus has returned to matters on the home front," said Lynn Franco, director of the Conference Board's Consumer Research Center.

At least in one area, consumers remain clearly upbeat -- the housing market.

With mortgage rates are at their lowest levels in decades, the Commerce Department reported Tuesday that sales of new single-family homes rose by 1.7 percent from March to April to a seasonally adjusted annual rate of 1.03 million -- the best since December.

Sales of previously owned homes increased by 5.6 percent in April to a rate of 5.84 million -- the fifth highest level on record, the National Association of Realtors said.

The Conference Board's report found consumers' faith in the economy right now is deteriorating. The Present Situation Index, a measure of current sentiment, fell to 67.9 in May from 75.2 in April, as people struggle to find work.

"The share of people reporting that jobs are hard to get rose to the highest level in nine years," said Douglas Porter, senior economist with BMO Nesbitt Burns Securities. "But consumers still remain relatively confident that the economy is poised to turn around."

That was evident in the Conference Board's Expectations Index, a gauge of consumer sentiment about the next six months. It rose to 94.4 in May from 84.9 in April.

"Consumers are becoming increasingly optimistic about the outlook despite recognizing that current conditions are still quite poor," said Scott Hoyt, economist and director of consumer economics at Economy.com.

Economists closely track consumer confidence because consumer spending accounts for two-thirds of all economic activity in the United States.