US consumer confidence rose to a six-month high in May despite market volatility and the renewed escalation in trade tensions between Beijing and Washington.

The Conference Board’s consumer confidence Index, a closely watched gauge of Americans’ willingness to spend, rose 4.9 points to 134.1 in May, beating market forecasts to reach its highest level since November.

“Consumers expect the economy to continue growing at a solid pace in the short-term, and despite weak retail sales in April, these high levels of confidence suggest no significant pullback in consumer spending in the months ahead,” Lynn Franco, senior director of economic indicators at the Conference Board, said.

May’s rise leaves the index 3.8 points shy of an 18-year struck in October. However, the survey period ended less than a week after US President Donald Trump raised tariffs on $200bn of Chinese imports to 25 per cent, prompting retaliatory action from Beijing. Analysts warn those moves could weigh heavily on global growth and add about $831 to the average annual budget of a US household.

Many of the Conference Board’s sub-indices, including consumers’ assessment of current economic conditions and expectations for future business conditions, improved in May. Additionally, the proportion of respondents expecting more jobs in coming months rose to 19.2 per cent from 16.7 per cent a month ago, while the number of consumers expecting fewer jobs in the months ahead shrank.

The weak spot was the sub-index for income prospects, which showed that although the proportion of consumers expecting an improvement rose 1.1 percentage points to 22.6 per cent, the proportion expecting weaker income prospects rose to 8.2 per cent from 6.8 per cent in April.

READ ALSO  Schools bill stokes Spain’s language wars

Earlier on Tuesday, data showed the annual pace of house price growth in the US had moderated to its slowest clip in more than six and a half years. Prices rose by a seasonally adjusted 0.1 per cent month-on-month in March, according to the S&P Corelogic Case-Shiller’s 20-city survey, taking the annual pace to 2.7 per cent — the lowest since August 2012.

“This is part of a broader softening in the housing market that is also evident in starts and sales activity,” said Blerina Uruci at Barclays. “We think deteriorating home affordability and increasing mortgage interest rates helped to slow the housing market in 2018 and represent headwinds for this year. We expect housing to plateau at current levels throughout 2019, rather than deteriorate further.”

Although consumers have remained confident, if not resilient, in the face of the US-China trade war, Morgan Stanley warned there could still be significant impacts from the impasse over coming months.

“A three-to-four month extension of current tariffs could dampen growth in China and the US by 20bp and 30bp, respectively, barely avoiding recession. A longer period of tension, including fresh tariffs on ~US$300 billion of remaining China exports to the US, puts 100bp of global growth at risk and pushes the Fed into repeated cuts,” strategist Michael Zezas wrote in a note over the long weekend, adding that neither of those outcomes had been properly priced in by the market.

“Recent conversations with investors suggest that they underappreciate the downside impact of such scenarios”

Via Financial Times