U.S. consumer confidence hits 16-year high; house prices rise

By Lucia Mutikani

WASHINGTON (Reuters) - U.S. consumer confidence surged to a more than 16-year high in March amid growing labor market optimism while the goods trade deficit narrowed sharply in February, suggesting the economy was regaining momentum after faltering at the start of the year.

The economy's strengthening fundamentals were underscored by other data on Tuesday showing further gains in house prices in January. Robust consumer confidence and rising household wealth from the home price gains suggest the recent slowdown in consumer spending, which has held back economic growth, is likely temporary.

"With confidence upbeat and several other signals related to consumer spending in fairly good shape, we think that real consumption will firm moving forward," said Daniel Silver, an economist at JP Morgan in New York.

"It looks likely that the recent spending data were held down by some temporary factors related to unusually mild weather and a delay in tax refund issuance."

The Conference Board said its consumer confidence index jumped 9.5 points to 125.6 this month, the highest reading since December 2000. Consumers' assessment of both current business and labor market conditions improved sharply in March.

The survey's so-called labor market differential, derived from data about respondents who think jobs are hard to get and those who think jobs are plentiful, was the strongest since 2001.

This measure closely correlates to the unemployment rate in the Labor Department's employment report and is consistent with continued reduction in labor market slack. The labor market is near full employment.

The dollar was trading marginally higher against a basket of currencies, while prices for U.S. government bonds fell slightly. Stocks on Wall Street rose.

GOODS TRADE DEFICIT FALLS

Both consumer and business confidence have surged in the wake of Donald Trump's victory in last November's presidential election. The Trump administration has pledged to pursue business friendly policies, including tax cuts and deregulation.

The Conference Board's survey was conducted before last week's failed effort by Republicans in the U.S. House of Representatives to repeal former Democratic President Barack Obama's 2010 Affordable Care Act, which dealt a setback to Trump.

"The question then is whether or not consumers will remain upbeat if legislation stalls," said Jim Baird, chief investment officer for Plante Moran Financial Advisors in Kalamazoo, Michigan. "At some point, those hopes for a stronger economy will fade if legislative victories remain elusive."

For now, the economy's prospects are brightening. Separately on Tuesday, the Commerce Department said in its advance economic indicators report the goods deficit fell 5.9 percent to $64.8 billion last month as a decline in imports outpaced a dip in exports.

The $4.2 billion decrease in imports is in line with the recent cooling in consumer spending. The government also said inventories at retailers and wholesalers both rose 0.4 percent last month.

The data prompted economists at Barclays to raise their first-quarter gross domestic product estimate by four-tenths of a percentage point to a 1.6 percent annualized rate. Morgan Stanley lifted its forecast to a 1.5 percent pace from a 1.0 percent rate.

"The recent widening, in our view, reflected the stabilization and rise in energy prices, as some of the improvement in nominal goods imports reflects petroleum," said Michael Gapen, chief economist at Barclays in New York. "In addition, we think the widening in the trade deficit reflected the end of the multi-year industrial recession in the U.S."

A third report showed the S&P CoreLogic Case-Shiller composite index of 20 metropolitan areas rose 5.7 percent in January on a year-over-year basis after increasing 5.5 percent in December.

David M. Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices, said recent rate increases by the U.S. Federal Reserve are not lifting mortgage rates dramatically and so should not present a significant headwind to further price gains.

The Fed raised rates a quarter percentage point at two of its last three meetings, most recently earlier in March. If the pace of Fed increases accelerates, however, "rising mortgage rates could become a concern," he said.

(Reporting by Lucia Mutikani; additional reporting by Dan Burns in New York; Editing by Chizu Nomiyama)