Consumer confidence reaches three-decade high Jobs, low inflation boost index in June


July 01, 1998|By BLOOMBERG NEWS

WASHINGTON -- Consumer confidence in the U.S. economy soared in June to its highest level in three decades, suggesting that strong spending will help cushion a worsening outlook for manufacturing and exports to Asia.

The Conference Board's index of consumer confidence, released yesterday, rose to 137.6 this month from 136.3 in May, propelled by an abundance of jobs, low interest rates, low inflation and stock market gains, the New York-based business research group said.

Factory activity in the Midwest slowed in June, according to the National Association of Purchasing Management, suggesting a broader slowdown in U.S. manufacturing. The Chicago group's manufacturing index fell more than expected, to 52.9 this month from 56.3 in May.

"The U.S. economy at midyear is buffeted by powerful opposing forces," said Bruce Steinberg, chief economist at Merrill Lynch & Co. in New York. "The Asia crisis is far deeper and taking a much larger toll on U.S. growth. At the same time, domestic demand has been stronger."

The reports came as Federal Reserve policy-makers convened yesterday for a two-day meeting on interest rates and to make their economic forecast for the rest of the year.

In testimony this month to Congress, Fed Chairman Alan Greenspan stood by his forecast that the fallout from the economic crisis in Asia will hurt demand for U.S. products abroad. That crisis and the strong dollar are providing U.S. consumers with lower prices for imported goods, which helps keeps domestic prices down, analysts said.

The index of consumer confidence reached an all-time high of 142.3 in October 1968, the Conference Board said. Analysts, investors and Fed policy-makers watch measures of consumer sentiment as a gauge of future spending. Consumer spending accounts for more than 60 percent of the nation's economic output.

A separate index gauging consumer expectations for the next six months rose to 115.2 in June from 113.3 in May. The index tracking assessment of current conditions rose to 171.1 in June from a revised 170.9, originally reported as 170.0.

The index of consumer confidence, based on a survey of 5,000 households, has exceeded 130.0 in six of the past seven months. That optimism has translated into increased consumer spending. In the first quarter, personal spending on goods and services rose at a 6.0 percent annual pace, the best three-month performance in six years.

Still, as manufacturing slows, it will be a brake on the U.S. economy in the second half of the year, analysts said. "The most likely explanation for the weaker tone of the [Chicago purchasers] report is the GM strike, which has begun to hit the Midwestern economy hard," said Ian Shepherdson, chief economist at HSBC Securities Inc. in New York.

Factory output supplies about 20 percent of U.S. gross domestic product.

Though it measures activity only in the Chicago area, investors watch the Chicago purchasing managers report because in the past it has foreshadowed the broader National Association of Purchasing Management's index, which measures conditions nationwide.

Pub Date: 7/01/98

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