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Consumer doubts

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Higher home prices and increased business investments point to a steadily improving U.S. economy that should be good news for consumers.

A January 8.1 percent rise in home prices over a year ago was the largest increase since mid-2006 and has economists predicting stronger than expected housing price gains this year.

Prices are being driven by an increased demand stimulated by low mortgage rates and a shortage of houses for sale due to a reluctance to sell at lower values in a depressed housing market.

Builders were also slow to invest in new construction when there was a glut of lower-priced foreclosed housing on the market.

New home sales in February were down from January, but last month’s sales were better than any other month since April 2010, when buyers benefited from the home-buying tax credit.

Rising prices also mean greater wealth for Americans, since homes are often the largest asset they have and might make them more willing to spend.

Signalling renewed confidence, businesses are also investing in new equipment in the first quarter of the year. Investments rose in January but then fell in February. However, the Wall Street Journal reported, “the longer-term picture is of businesses steadily increasing spending after a big pullback in the middle of last year.”

The optimistic outlooks, though, are not winning over consumers. The Consumer Board said consumer confidence fell in March and remains well below the level indicating a healthy economy.

Viewed from consumers’ perspective, a larger percentage now expect the economy to worsen in the next six months. Their opinions were shaped by higher gasoline taxes and the hit to their take-home pay when the payroll tax was restored to its normal level, taking about $20 a week out of income.

They are also fearful of losing their jobs as $85 billion in federal spending cuts take effect. Such doubts could curtail consumer spending, which accounts for about 70 percent of the economy.

“Smaller paychecks, depressed consumer mood and rising (gasoline) prices are not very favorable for elevated levels of discretionary spending,” said Chris Christopher, director of consumer economics at IHS GLobal Insight.

Statistics aside, for consumers the measure of the economy is in their daily lives — what they are paying at the pump and grocery stores and bringing home in their paycheck, if they are getting one.

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