Consumer confidence continues to rise

Index for Jan. shows people are putting aside economic fears

January 19, 2002|By BLOOMBERG NEWS

WASHINGTON - U.S. consumer confidence rose in January to the highest level in 12 months, pushing aside worries about unemployment amid hopes that the economy may pull out of recession by mid-year.

The University of Michigan's consumer sentiment index registered 94.2 for this month, a number last exceeded in January 2001, after increasing to 88.8 in December. Analysts had expected the index to rise to 90.

"Consumers are convinced that the economy will turn around soon," said Stephen Stanley, an economist at Greenwich Capital Markets Inc. in Greenwich, Conn.

Other reports this month suggest the economy is climbing out of the first recession in a decade.

Companies have slowed the pace of job cutting as factory orders increase.

Dell Computer Corp. said yesterday that sales and earnings for its current quarter will exceed previous forecasts, amid increased purchases by households.

As the economy starts to rebound, demand for imported goods will probably rise, and that's likely to cause the trade deficit to widen. With demand still weak in November, the trade gap narrowed, a separate report showed yesterday.

The rise in the Michigan confidence index was the biggest in two years, and it exceeded an expected reading of 90, based on the median of 38 forecasts in a Bloomberg News survey. Confidence matters because it is tied to consumer spending, which accounts for two-thirds of the gross domestic product.

A separate index of expectations about the economy over the next one to five years rose to 91.7, the highest since November 2000. The current conditions index, which reflects Americans' perception of their financial situation and their willingness to spend on furniture and home appliances, fell to 98.1 from 99.

"The psychological shock from the terrorist attacks is fading, though respondents have no illusions about the current situation," said Stanley at Greenwich Capital.

The unemployment rate rose to 5.8 percent in December, a 6 1/2 -year high, and the economy lost jobs for a fifth straight month.

Confidence plummeted in September, after the terrorist attacks brought the already slowing economy to a halt. The Michigan index has risen every month since then.

That was reflected in consumer spending toward the end of 2001. Americans purchased autos at a record pace, and retailers including Wal-Mart Stores Inc., Best Buy Co., and Gap Inc. had better-than-expected sales in December.

Economists say a lasting recovery will depend on corporate profits, which will enable companies to begin spending again in equipment and software.

Initial unemployment claims fell last week to 384,000, the lowest level in more than five months. An index of manufacturing in the Philadelphia region showed the industry is expanding for the first time since November 2000.

And stock prices are rising. The Dow Jones industrial average has increased 18 percent from a low of 8235.81 on Sept. 21.

Yesterday, the Dow lost 78.19 points to close at 9,771.85, and the Nasdaq composite index declined 55.48 points, or 2.8 percent, to 1,930.34.

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