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Americans' economic confidence ticks up slightly

Tue, 08/31/2010 - 9:25am
Manufacturing.net

Americans' confidence in the economy improved slightly in August, but the mood is still gloomy amid job worries, according to a monthly survey.

The Conference Board said Tuesday that its Consumer Confidence Index now stands at 53.5, up from a revised 51.0 in July. Economists surveyed by Thomson Reuters had expected 50.5. The increase comes after two straight months of declines.

It takes a reading of 90 or more to indicate a healthy economy — a level not reached since the recession began in December 2007. The index — which measures how Americans feel about business conditions, the job market and the next six months — had been recovering fitfully since hitting an all-time low of 25.3 in February 2009. But August's reading suggests that American confidence hasn't improved from a year ago, a bad sign for the economy and for retailers, which have been grappling with a weak start to the back-to-school season.

Economists watch confidence closely because consumer spending accounts for about 70 percent of U.S. economic activity and is critical to a strong rebound. But worries are rising the economy is growing too slowly to support sustained job growth, and some are concerned it could fall back into a recession.

"The comfort in (August's confidence figures) is that confidence did not fall further," Paul Dales, U.S. Economist at Capital Economics, said in a statement. "But there are few signs that households will ramp up their spending. High unemployment, widespread negative housing equity and low share prices are keeping households on the sidelines."

Investors seized on the bigger than-expected increase. In late morning trading, the Dow rose 29.36, or 0.3 percent, to 10,039.32. The Standard & Poor's 500 index rose 2.33, or 0.2 percent, to 1,051.25. Stocks have been pummeled throughout the month because of uncertainty over signs of slowing growth.

Tuesday's regional manufacturing report was another on of those signs. The drop in the Chicago Purchasing Managers Index was similar to declines seen in other regional manufacturing reports earlier this month.

Meanwhile, a widely watched home price index showed home prices rose in June for a third straight month as now-expired tax credits inspired a burst of home buying. But prices are expected to fall the rest of the year now that demand has faded.

The slight improvement in August's Consumer Confidence Index was boosted by shoppers' improved outlook over the next six months. That gauge rose to 72.5 from 67.5. The other compenent of the index, which measures how consumers feel now about the economy, decreased to 24.9 from 26.4.

"Employment concerns continue to heavily weigh on consumers' attitudes," Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.

The Conference Board survey, based on a random survey mailed to 5,000 households from Aug. 1 to Aug. 24. showed that worry. Those saying jobs are "hard to get" increased to 45.7 percent from 45.1 percent.

New figures issued Friday show the economy is weaker than expected, and the outlook for the rest of the year is looking bleaker. The Commerce Department reported that gross domestic product grew at a 1.6 percent rate for April through June. The initial estimate was 2.4 percent. Home sales are plunging, and consumers are saving more and spending less as the unemployment rate remains stuck at almost 10 percent.

The Standard & Poor's/Case-Shiller 20-city home price index released Tuesday posted a 1 percent increase in June from May and was up 4.2 percent from a year ago. Home prices nationally were up 4.4 percent in the second quarter compared with the first quarter. That was largely because buyers could take advantage of government tax credits of up to $8,000.

Home sales have dropped sharply since those incentives expired. Lending standards remain tight, and unemployment is stuck near 10 percent. Last week, the National Association of Realtors said sales of previously occupied homes in the U.S. fell 27 percent in July, the weakest showing in 15 years.

Economists will closely watch Friday's reading on job figures for August, but they're expecting the month will mark the fourth straight month of tepid hiring by the private sector. Given the scenario, the unemployment rate is slated to tick up to 9.6 percent from 9.5 percent.

Against this background, consumers are waiting for the best deals and buying fashions that they can wear right away for the fall season. And stores don't expect shoppers to start spending anytime soon.

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AP Real Estate Writer Alan Zibel in Washington contributed to this report.

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