Improving labor market conditions lifted U.S. consumer confidence to an eight month high in December, but persistently weak house prices remain an obstacle to faster economic growth.
The sharp rise in sentiment reported by the Conference Board on Tuesday offered hope for a pick-up in consumer spending after an anemic performance in November.
It suggests there is some real improvement in the economy. Consumer confidence really boils down to how people feel about the labor market, said Mark Vitner, a senior economist at Wells Fargo Securities in Charlotte, North Carolina.
The Conference Board's index of consumer confidence rose to 64.5 this month from 55.2 in November, beating economists' expectations for a reading of 58.3.
A separate report from Standard & Poor's/Case-Shiller showed house prices in 20 major metropolitan areas declined 1.2 percent on an unadjusted basis in October after falling 0.7 percent the prior month.
Other data offered a mixed picture of manufacturing this month, with the Dallas Federal Reserve saying factory activity weakened in its region.
But manufacturing in the central Atlantic region firmed after being flat in November as new orders and shipments increased, offsetting a modest decline in employment, the Richmond Fed said.
Still, consumers are increasingly upbeat. The Conference Board's present situation index jumped to a three-year high, with the expectations index the highest in seven months.
Last month's rise in consumer confidence largely reflects a better tone in the labor market. The unemployment rate dropped to a 2-1/2 year low in November and applications for first-time jobless benefits are the lowest since April 2008.
Despite the show of resilience, the debt crisis in Europe continues to cast a shadow over the U.S. economy.
This good news is likely to be tested in the new year by slowing global growth and ongoing risk from Europe, said Eric Green, chief economist at TD Securities in New York.
Still, the stronger momentum going into year-end is for real and at face value puts the economy in better position to withstand what is sure to be stronger headwinds to growth in the first half of 2012.
Stocks on Wall Street ended little changed in light trading, while U.S. Treasury debt prices rose. The dollar weakened marginally against a basket of currencies.
DEMAND FOR HOUSING PICKING UP
Despite the persistent drop in prices, housing is becoming less of a drag on the economy. Demand for housing is picking up and home sales volumes have increased in recent months.
Builders have been breaking more ground on new residential projects and home construction is expected to add to U.S. gross domestic product next year. If so, it would be the first increase since the second quarter of 2010.
While some other housing indicators have improved over the past few months, we have yet to see most house prices measures pick up, said Daniel Silver, an economist at JPMorgan in New York.
With the labor market improving, housing could get some support. In the Conference Board survey, consumers' outlook of job market conditions brightened significantly.
The share of consumers viewing jobs as plentiful rose to 6.7 percent this month from 5.6 percent in November. The proportion of those viewing jobs as hard to get slipped to 41.8 percent from 43 percent in November.
These are the best readings for both components since January 2009.
Households are beginning to perceive an improvement in the labor market, said Carl Riccadonna, a senior U.S. economist at Deutsche Bank.
This could provide an important contribution to what we think may be a burgeoning positive feedback loop of improving confidence, rising consumption, expanding output and additional income growth.
The share of consumers anticipating more jobs in the months ahead rose to 13.3 percent from 12.4 percent, while those expecting fewer jobs declined to 20.2 percent from 23.8 percent.
More consumers are expecting their incomes to increase, with that proportion rising to 17.1 percent from 14.1 percent in November.
(Reporting By Lucia Mutikani; Editing by Padraic Cassidy and Jan Paschal)