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Drop in gas prices lifts spirits

A gauge of consumer confidence has its biggest increase in two years this month.

August 27, 2008|From the Associated Press

NEW YORK — Americans felt better about the economy this month, as a barometer of sentiment posted the biggest boost in two years amid falling gasoline prices.

The Conference Board, a private research group, said Tuesday that its consumer confidence index rose to 56.9, up from a revised 51.9 in July. That's the largest gain since August 2006 and is ahead of the 53 expected by economists surveyed by Thomson Reuters.

It's also the second month in a row that sentiment has improved, after a six-month slide since January -- but it remains about half what it was a year earlier, and worries about the job market persisted.

"It's still too early to call a bottom" on both confidence and housing, said Gary Thayer, senior economist at Wachovia Securities.

"Consumer confidence readings suggest that the economy remains stuck in neutral, but may be showing signs of improvement by early next year," said Lynn Franco, director of the Conference Board Consumer Research Center. However, "overall readings are still quite low by historical standards, and it is still too early to tell if the worst is behind us."

Economists and investors monitor consumer sentiment because consumer spending represents about two-thirds of all economic activity.

Falling gasoline prices in recent weeks helped boost consumers' mood, Franco said.

The Conference Board's index that measures shoppers' current assessment of the economy fell to 63.2 from 65.8 in July. But the one that gauges their outlook over the next six months jumped to 52.8 from 42.7 in July. The 10-point increase marked the biggest gain since November 2005, when the economic fallout of Hurricane Katrina was subsiding.

Franco said that declines in the present situation index, both in terms of business conditions and the labor market, appear to be moderating.

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