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Wed, May 28, 2003 - Page 12 News List

Economists predict rise in US consumer confidence

EXPECTATIONS Analysts think that the research group The Conference Board will report it index rose again this month, even if spending appears restrained


US consumer confidence probably rose this month for a second straight month as low borrowing costs and a rising stock market outweighed concerns over unemployment, economists said in advance of a private group's report due to be released yesterday.

The Conference Board will probably say its consumer confidence index rose to 84 this month from 81 last month, based on the median of 48 estimates in a Bloomberg News survey. The New York research group's index rebounded from 62.5 in March, the lowest since October 1993.

A sustained rise in sentiment may bolster consumer spending, which accounts for 70 percent of the economy, after six months of the slowest growth since the recession in 2001.

Economists said that even as the index probably rose, consumer sentiment is being restrained by the loss of 525,000 jobs in the last three months.

"Consumer confidence is still substantially below its levels prior to the onset of major worries about Iraq," said Steven Wood, principal economist at Insight Economics in Walnut Creek, California, who pegged this month's reading at 85.

The index averaged about 97 last year.

"Plunging gas prices, low interest rates and an improving stock market have bolstered consumer attitudes," he said.

The Conference Board was due to issue its report at 10am in New York. At the same time, the National Association of Realtors in Washington will probably report that sales of previously owned homes rose 3.1 percent last month to 5.7 million at an annual rate, based on the median of 49 forecasts.

The Department of Commerce also at 10am in Washington was expected to say that last month's sales of new single-family homes declined 2.7 percent to an annual pace of 985,000, according to the median of 47 forecasts.

The end of fighting in Iraq last month helped diminish consumer uncertainty and led to lower energy costs, buttressing consumer expectations. Crude oil prices have fallen by about a quarter since reaching a 12-year high of US$39.99 a barrel Feb. 27 in the buildup to the war.

The Standard & Poor's 500 Index, which fell 23 percent last year, has risen about 12 percent since early March.

The average rate on a 30-year fixed mortgage dropped last week to 5.34 percent, according to Freddie Mac, the No. 2 buyer of US mortgages. That was the lowest since the group started records in 1971.

Homeowners have been able to tap the equity in their houses for cash when they refinance mortgages, helping to buoy consumer spending.

Some reports suggest job cuts may be starting to pinch consumer spending. US retail sales unexpectedly fell last month as consumers spent less on furniture, clothing and gasoline.

Since early February, weekly claims for jobless benefits have exceeded 400,000, a number most economists consider a sign of a weak labor market.

The US jobless rate rose to 6 percent last month, matching an eight-year high, the government said earlier this month.

Rudolf Thunberg, an economist at Ried Thunberg & Co in Westport, Connecticut, said he expected the Conference Board index to show a smaller gain than a survey earlier this month by the University of Michigan. That poll found that US consumer confidence surged this month to the highest in a year.

"We'll see a modest improvement after quite a substantial gain in April, but it's likely to be muted by the job market,"Thunberg said.

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