Consumer Confidence Posts Gains in June

A workman enters a new KB home nearing completion in Sacramento, Calif., Monday, June 26, 2006. The Commerce Department reported Monday, that sales of new single-family homes increased by 4.6 percent last month to a seasonally adjusted annual rate of 1.234 million units. (AP Photo/Rich Pedroncelli) (Rich Pedroncelli - AP)

NEW YORK -- Consumer confidence rose in June and existing home sales fell less than expected in May, providing signs that the economy remains resilient and that the Federal Reserve may need to tighten credit policy more.

A widely watched barometer of consumer confidence improved slightly in June after declining in May, according to a New York-based private research group. And sales of existing homes in May fell for the third time in the past five months, though the numbers indicate the housing market is headed for a soft-landing, not a collapse.

"These reports are signs that the economy does have resilience, but it is not a Superman economy, and it does have some weaknesses," said Stuart Hoffman, chief economist at PNC Financial Services Group. "The economy is still flying but at a lower altitude."

The data played into market fears that the Federal Reserve would raise a key interest rate this week and could raise it when it meets again in August, too. The Fed is expected to lift the rate by a quarter-percentage point to 5.25 percent at its two-day meeting starting Wednesday, as part of its ongoing campaign to combat inflation.

In early afternoon trading, the Dow Jones industrial average dropped 85.16 points, or 0.77 percent, to 10,960.12.

The New York-based Conference Board said its confidence index rose to a better-than-expected reading of 105.7 from a revised 104.7 in May. Analysts had expected 103.9.

Consumer confidence has been a bit choppy this year, following a rebound since November in the aftermath of last year's Gulf of Mexico hurricanes. In addition to May, February also saw a dip in consumer sentiment when short-lived pessimism over the job market hurt confidence.

"The slight bounce-back in confidence this month was a result of the moderate improvement in consumers' expectations," said Lynn Franco, director of the Conference Board Consumer Research Center, in a statement.

Still, she noted, "Despite the uptick, consumers remain concerned about the short-term outlook."

The Present Situation Index, which measures how shoppers feel now about economic conditions, declined to 132.7 from 134.1. The Expectations Index, which measures consumers' outlook over the next six months, edged up to 87.6 from 85.1 in May.

Hoffman believes that the recent stock market declines and sluggishness in the job market may have soured consumers' current views of the economy, while a leveling off of energy prices in recent weeks may have helped lift consumer optimism about the economy's future.

Hoffman warned that if energy costs spike in the summer or fall, it may force companies to cut costs by reducing hiring, however.