The June reading was better than expected, with business conditions and dropping gas prices playing parts.
By Associated Press
Published June 30, 2004
NEW YORK - Consumer confidence jumped to a two-year high in June, buoyed by an improved job market and softening gasoline prices, the Conference Board reported Tuesday.
The upbeat news contrasted with early reports this week of a slowdown in retail sales in June. But economists shrugged off those disappointing figures, which were caused primarily by cool weather in the South and Northeast, as a temporary setback.
The Consumer Confidence Index, which barely budged in May, increased nearly 9 points to 101.9, up from a revised reading of 93.1 in May. The latest reading was much better than the figure of 95 that analysts had expected.
Lynn Franco, director of the Conference Board's Consumer Research Center, said the strong improvement in current business conditions propelled consumer confidence to the highest level since June 2002, when the indicator was 106.3.
The Present Situation index is now 104.8, up from 90.5 in May. The Expectations Index, which measures consumers' outlook over the next six months, rose to 100 from 94.8.
"Looking ahead, consumers expect the economy to continue to grow at a healthy clip and to continue to generate additional jobs," Franco said in a statement. "And, with prices at the pump beginning to ease, the short-term outlook remains favorable."
The survey's cutoff for June's preliminary results was June 22, before the relative smooth transfer of power to Iraq happened.
Economists closely track consumer confidence because consumer spending accounts for two-thirds of all U.S. economic activity.
Mark Vitner, an economist at Wachovia Corp., said he believes the recent improvement in consumer confidence largely reflects improving employment conditions.
He noted that June's lackluster retail sales were "only temporary" largely because of the bad weather and higher gasoline prices, which have come down and are the lowest in two months.
Both Wal-Mart Stores Inc. and Target Corp. warned Monday that sales at stores opened at least a year would be lower than projected for June. The nation's retailers are expected to report June sales figures July 8.
Vitner added, "If gasoline prices keep coming down over the summer then the damage is limited." If gas prices don't continue to decrease, Vitner believes there will be an impact on consumer spending in 2005.
Joel Naroff, president and chief economist at Naroff Economic Advisors Inc., said that while he's encouraged by the consumer confidence figures, there's still plenty of uncertainty out there.
"We have to see wage increases start to kick in before we see consumers feel really good," he said. As for Iraq, Naroff believes that consumers are shifting their focus away from tensions there as the economy rebounds.
"When the economy wasn't good, Iraq really weighed on people's minds," he said.
The Conference Board's report Tuesday showed that consumers' assessment of current business conditions improved considerably in June. Those saying conditions are "good" rose to 25.6 percent, up from 22.2 percent.
Those saying conditions have worsened fell to 17.5 percent from 21.6 percent. Consumers claiming jobs are "hard to get" decreased to 26.5 percent from 30.3 percent. Those saying jobs are "plentiful" rose to 18.0 percent from 16.6 percent.
Consumers are more optimistic about the short-term future. Those expecting business conditions to improve in the next six months rose to 23.4 percent from 22.8 percent. Consumers expecting conditions to worsen declined to 9.2 percent from 10.1 percent.
The employment outlook remained upbeat. Those anticipating more jobs to become available increased to 19.7 percent from 18.7 percent. Those expecting fewer jobs edged down to 17.1 percent from 17.3 percent. The proportion of consumers anticipating an increase in their incomes rose to 19.3 percent, up from 17.1 percent last month.
Analysts expect another report of robust job increases when the Labor Department releases its employment figures Friday, following three months of solid job gains. Analysts anticipate the unemployment rate to remain at 5.6 percent. But they are counting on nonfarm payrolls - government and private employers - to add 250,000 jobs.
INTEREST RATE REACTION
Central bankers throughout the world are expected to hold the line in their own countries, at least in the short run.
