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Consumer Confidence in June Exceeds Forecasts

Optimism over rallying stocks and coming tax cuts counter lingering worries about the labor market, the Conference Board reports.

June 25, 2003|From Times Wire Services

U.S. consumer confidence held up better than expected in June as optimism over rallying stocks countered lingering worries about the jobs market, the Conference Board reported Tuesday.

The Conference Board's monthly consumer confidence index stood at 83.5, only marginally down from 83.6 in May and outstripping market forecasts for a fall to 82.4.

Economists called the report modestly positive and said it shows that consumers continue to exhibit postwar optimism and, buoyed by reports of coming tax cuts, see better times ahead.

"It just shows that the consumer sector may continue to be a pillar and foundation for growth in the overall economy going forward," said Patrick Fearon, an economist with A.G. Edwards & Sons Inc. in St. Louis.

Lynn Franco, director of Consumer Research Center at the Conference Board, a New York business group, said consumers have grown more optimistic over the last three months.

"The recent turnaround in the stock market and an easing in unemployment claims should keep consumer expectations at current levels and may signal more favorable economic times ahead," Franco said.

Consumer confidence is closely watched by the Federal Reserve, which began a two-day meeting Tuesday that is widely expected to result in a cut in interest rates.

Although analysts were pleasantly surprised by the resilience of consumers, there was enough weakness in the survey, particularly on the job outlook, that few thought the Fed would be deterred from easing rates.

"It was a lot better than I thought it would be," said Joe LaVorgna, senior U.S. economist at Deutsche Bank Securities. "Having said that, the labor market news is still quite weak. People are feeling OK about the future, but they need to see some improvement in the labor market," he added.

Consumers also showed signs of spending fatigue with the numbers saying they planned to buy cars and houses falling to their lowest levels in years.

The U.S. unemployment rate stands at a nine-year peak, though a gradual decline in weekly jobless claims has stirred hopes for an improvement soon.

In a separate survey, chief financial officers at U.S. firms were optimistic about the economy and predicted an increase in their companies' revenues and earnings. That boost is coming mainly from a decline in the value of the dollar relative to other currencies, according to the study by Financial Executives International and Duke University's Fuqua School of Business.

The dollar hit a record low against the euro on May 29, when one euro equaled $1.191. The dollar has since risen more than 3%.

"While the depreciated dollar will help sales revenue and earnings, these gains will unfortunately have little feedback effect on corporate spending and hiring plans," said John Graham, director of the survey.

"Our big concern is deflation because it would significantly hurt the already modest capital spending plans," Graham said.

The executives said a 2% annual decline in overall prices would cause 40% of them to decrease capital spending, and 46% said they would react by postponing investment.

Associated Press, Reuters and Bloomberg News were used in compiling this report.

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