Consumer confidence improved with the beginning of the 2011, raising hopes for a better year ahead.  The January reading of the Conference Board Index of Consumer Confidence Index indicated a sharp improvement in confidence, with the index rising 7.3 points to 60.6. This returns the index to a level last seen in May 2010, before the economy hit a soft patch in the second and third quarters.

Consumers’ view of both their current situation and future expectations improved strongly in January, with the current index up 6.1 points to 31.0 and the expectations index lifting 8.1 points to 80.3. The Conference Board notes that “Consumers … expressed greater confidence that the economy will continue to expand and generate more jobs in the months ahead. Income expectations are also more positive.”

Consumers’ appraisal of business conditions picked up, with those anticipating an improvement over the next six months increasing 2.2% to 19.0%, while there was a slight decline (down 0.5% to 11.3%) in those expecting business conditions to worsen. Similarly, consumers’ assessment of the job market improved, with those claiming jobs are “plentiful” up 1% to 5.2%, while those claiming jobs are “hard to get” declined 2.6% to 43.4%. Income expectations also moved in the right direction, with those anticipating an increase in income over the next 6 months up 1.5% to 11.4% and those expecting a decrease down 1.6% to 15.3%.

Confidence in the housing market also strengthened in January, with 2.2% of respondents indicating that they were planning to buy a home in the next 6 months – up from 1.9% in December. There was also a slight improvement in those considering buying a new home in January, up to 0.4% of respondents from 0.3% in December.

The improving employment and income outlook is likely to support improvement in housing demand in the year ahead. While the economic recovery slowed in the second and third quarters of 2010, conditions began to improve in fourth quarter, with momentum expected to build through in 2011. This will support job growth and buoy consumer confidence through 2011. As consumer confidence builds and job growth strengthens, we can expect substantial gains in housing demand through 2011 and 2012.