US consumer confidence rises

DISCONNECT: Despite turbulent US markets and a jobless rate at a six-month high, polls show US consumer confidence is up, probably because of lower gas prices


Sat, Aug 11, 2007 - Page 11

Consumer confidence rebounded this month, rising to a five-month high as receding gasoline prices and a mostly solid employment climate made people feel better about the economy's prospects and their own financial situations.

The improved attitudes come even as Wall Street has been enduring a turbulent spell, which has sent stocks on wild upward and downward swings. Investors are worried that mounting problems in the housing and home mortgage markets will hurt the broader financial system and short-circuit economic expansion.

The RBC Cash Index showed that consumer confidence rose to 89.3 this month. That marked a bounceback from last month's 76.1, the worst reading in almost a year. The new reading was the best since March. The index is based on the results of the international polling firm Ipsos.

"This indicates that there is a significant disconnect between Wall Street and Main Street," said Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.

Peoples' feelings about the current economic conditions climbed to 105.6 this month, up from 95.8 last month. Their feelings also brightened about how the economy and their own financial fortunes will fare over the next six months. This expectations index rose to 43.9 this month, nearly double the reading of 23.1 for last month.

Economists believe lower gasoline prices were probably a big factor behind the improvements.

Gasoline prices nationwide continued to ease early this month, falling to US$2.84 a gallon (3.8 liters), according to information compiled by the Energy Department. Three months earlier, prices had spiked past US$3.

Another factor believed to be behind the brighter consumer attitudes: a job market that is still good. The nation's unemployment rate inched up to 4.6 percent last month, the government reported last week. Even though that was a six month high, the jobless rate is still considered low by historical standards.

A measure tracking consumers' sentiments about the nation's employment conditions rose to 124.5 in August, up from 116.8 in July.

"Consumers seem to be fairly upbeat," said Richard Yamarone, economist at Argus Research Corp. "It looks like they are ignoring the warnings on Wall Street."

Yamarone said the recent increase in the federal minimum wage -- the first bump up in a decade -- also may have helped to lift peoples' spirits. The country's lowest-paid workers got a US$0.70 boost last month to $5.85 an hour. By 2009, the wage will rise to $7.25 an hour.

Another gauge which measures peoples' attitudes about investing -- including their comfort in making major purchases -- also picked up this month. That measure rose to 97.9 from 83.6 for last month.

The overall confidence index is benchmarked to a reading of 100 on January 2002, when Ipsos started the survey.

The RBC consumer confidence index was based on responses from 1,003 adults surveyed Monday through Wednesday about their attitudes on personal finance and the economy. Results of the survey had a margin of sampling error of plus or minus 3 percentage points.