U.S. July Consumer Confidence Seen Rising: Bloomberg Survey
07/31 00:01
By Siobhan Hughes and Alex Tanzi
Washington, July 31 (Bloomberg) -- Consumer confidence in the U.S. economy probably rose in July to the highest level this year as rising home values, falling interest rates and tax rebates gave Americans reason to feel secure, analysts said ahead of today's private survey.
The Conference Board's consumer confidence index probably rose to 118 this month from 117.9 in June, according to the median of 42 forecasts in a Bloomberg News survey. Confidence was last higher in December, when the index reading was 128.6.
Confidence has risen even in the face of mounting job losses, a drop in stock prices, and the slowest year of economic growth since the 1990-1991 recession. That helps explain why Federal Reserve Chairman Alan Greenspan is optimistic that the economy will pick up later this year.
``The fabric of consumer confidence hasn't been breached,'' Greenspan told the Senate Banking Committee last week. Confidence is often taken as a gauge for changes in consumer spending, which accounts for two-thirds of the economy.
The New York-based group is scheduled to release its report at 10 a.m. Washington time.
Also today:
-- Income and spending probably rose in June at the same pace as a month earlier, analysts said. Personal income probably increased 0.2 percent for the month while spending probably climbed 0.3 percent. Rising incomes and spending help explain the strength in consumer confidence, analysts said. The report from the Commerce Department is due at 8:30 a.m. Washington time.
-- Manufacturing in the Chicago region probably contracted for the 10th consecutive month. The Chicago purchasing managers index probably fell to 43.5 in July from 44.4 during June, analysts said. A reading below 50 points to declining production, orders and other industrial activity. That report is due at 10 a.m. Washington time.
Federal Reserve
Fed policy makers have lowered interest rates six times so far this year to revive the economy and avoid a recession. The overnight bank lending rate, at 3.75 percent, is the lowest in seven years. Low inflation gives central bankers room to cut rates further if they choose.
Lower borrowing costs have already spurred confidence and spending among home buyers. New home sales rose in June to 922,000 units at an annual pace, which would be enough to make 2001 a record year for home sales if sustained. Previously-owned homes sold at an annual rate of 5.33 million houses, also enough to make this the best year ever for the industry.
Home prices have surged along with sales, adding to confidence and providing a source of cash for consumers who can refinance mortgages or take out home equity loans. Prices of existing homes rose 8.8 percent in June from the same month last year, the largest increase since 1991.
At the same time, the government has already started mailing tax-rebate checks of as much as $600 per household, giving taxpayers money to pay down debt, spend, or save. Prices of gasoline have fallen and natural gas costs are half what they were at the start of 2001, giving consumers more money to spend on other goods and services.
``Consumers are still in good enough financial conditions to spend robustly, but more importantly they remain in the mood,'' said Paul Taylor, chief economist at the National Automobile Dealers Association in McLean, Virginia.
The primary threat to consumer confidence is rising unemployment. The jobless rate rose to 4.5 percent in June from a 30-year low of 3.9 percent in October and the central bank projects the unemployment rate will rise to between 4.75 percent and 5 percent by the end of the year.
Companies have been firing workers because of a sluggish economy. The economy slowed in the second quarter to a 0.7 percent annual growth rate. It was the fourth quarter in a row with growth of less than 2 percent. The last time that happened was during the 1990-1991 recession. . . . . . .
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