Sun, Feb 27, 2011 - Page 11 News List

US consumer confidence reaches three-year high


US consumer confidence hit a three-year high this month, suggesting the economy remained on a solid footing despite soaring gasoline prices.

The rise in sentiment was a hopeful sign for the economic recovery after the government said on Friday that growth in the fourth quarter was not as robust as it previously estimated.

The Thomson Reuters/University of Michigan survey’s index on consumer sentiment climbed to 77.5, the highest since January 2008, from 74.2 last month — indicating consumers were weathering higher gasoline prices for now amid optimism about the labor market.

GDP, meanwhile, grew at an annualized rate of 2.8 percent in the fourth quarter, the Commerce Department said, a downward revision from its initial 3.2 percent estimate a month ago. Economists had expected GDP growth to be revised up to a 3.3 percent pace.

Economists at JPMorgan lowered their forecast for first-quarter GDP growth to 3.5 percent from 4.0 percent, citing softer-than-expected consumer spending and possible headwinds from the oil price spike. Harsh winter weather is also seen as a factor weighing on growth.

Richmond Federal Reserve Bank President Jeffrey Lacker said on Friday he did not think oil above US$100 a barrel or gasoline over US$3 a gallon would derail the US recovery.

“So far this seems quite manageable,” he said on CNBC. “The real danger is in inflation psychology. I think as long as expectations are managed well, we’re going to get through this without a burst in inflation.”

The economy expanded at a 2.6 percent rate in the third quarter and grew 2.8 percent for the whole of last year.

The government’s measure of fourth-quarter growth was lowered to reflect a contraction in government spending that was more than double the initial estimate.

Spending by state and local governments, which are under heavy budgetary pressures, shrank 2.4 percent. In all, government spending lopped 0.31 percentage point from GDP growth.

Growth in consumer spending — which accounts for more than two-thirds of US economic activity — was trimmed to a 4.1 percent rate from 4.4 percent. It was still the fastest since the first three months of 2006 and an acceleration from the third quarter’s 2.4 percent rate.

“It validates the view that the most significant player in the economy is gradually coming back, but is doing so in a restrained fashion,” said Patrick O’Keefe, director of economic research at J.H. Cohn in Roseland, New Jersey.

The pace of growth was too slow to do much to lower the unemployment rate, which fell during the quarter from 9.6 percent to 9.4 percent. It fell again last month to reach 9 percent.

Fed officials have been concerned the economy is expanding too slowly to bring unemployment down significantly. They are likely to view high oil prices primarily as a risk to growth rather than a long-term inflation concern.

Fed Chairman Ben Bernanke is scheduled to testify to Congress on Tuesday and Wednesday, and analysts think he is unlikely to suggest much appetite within the central bank for scaling back a US$600 billion government bond-buying program launched in November.

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