US Consumer Confidence Rises; Spending Outstrips Income

30 May 2001

Newly released economic indicators suggest that US consumer confidence is slowly beginning to pick up and that consumer spending remains buoyant.

New York research group The Conference Board yesterday announced that its influential index of US consumer confidence – compiled from a survey of 5,000 households – rose from 110 in April to 115.5 this month. Nevertheless, the rise is far from dramatic – the index remains below March’s figure of 116.9 and well down on September’s 140, the highest level for nearly thirty years.

Separately, the US Commerce Department also released new data yesterday, showing a rise in personal spending by 0.4% in April, topping a 0.3% rise in personal incomes. However, when adjusted for inflation, the rise in spending rose only 0.1% in real terms, the lowest monthly increase in purchasing power since January.

Savings, meanwhile, fell from –0.6% in March to –0.7%, suggesting that consumers are continuing to spend beyond their immediate resources by borrowing or eating into past savings – again signs that people remain confident about the future.

Behind consumers’ increasing personal expenditure and robust confidence – which persist in stark contrast to the slump in business investment and profits – lie strong property values, the promise of tax cuts and lower interest rates. However, some economists still fear that problems elsewhere in the economy may eventually drag consumer spending down with them.

News source: Financial Times