Confidence in US economy rises to five year high

Tuesday 25 June 2013 18.29
Consumer spending accounts for about 70% of US economic activity
Consumer spending accounts for about 70% of US economic activity

Americans' confidence in the US economy has risen to its highest level in more than five years, bolstered by a more optimistic outlook for hiring.

The Conference Board, a New York-based private research group, said that its consumer confidence index jumped to 81.4 in June.

That is the best reading since January 2008 and is up from May's reading of 74.3, which was revised slightly downward from 76.2.

Consumers' confidence in the economy is watched closely because their spending accounts for about 70% of US economic activity.

The report shows consumers are more positive about current economic conditions and have a more optimistic view of the economy and job market in the next six months.

Lynn Franco, director of economic indicators at the Conference Board, said that "suggests the pace of growth is unlikely to slow in the short-term, and may even moderately pick up."

Employers added 175,000 jobs in May, nearly matching the average monthly gain for the past year.

That is enough to slowly lower the unemployment rate. The rate ticked up to 7.6% last month but has fallen 0.6% points in the past year.

Americans have been resilient this year, despite tax increases and steep government spending cuts.

Consumer spending rose at the fastest pace in two years in the first three months of the year.

That helped the overall economy grow at a 2.4% annual pace during the January-March quarter.

Economists forecast that overall economic growth is slowing to a 2% annual pace in the April-June quarter, in part because they expect consumers have eased up on spending from the robust first-quarter pace.

So far, reports on consumer spending for the second quarter have been mixed.

In April, consumer spending fell as income was unchanged. However spending appears to have rebounded in May based on a preliminary report on retail sales.

Americans spent more on cars, home improvements and sporting goods, boosting retail sales 0.6%.

The US Commerce Department will release a more complete report on May consumer spending and income on Thursday.

The Conference Board survey is conducted in the first half of the month. So the June report did not capture the impact of US Federal Reserve Chairman Ben Bernanke's comments last week after the Fed's policy meeting.

Mr Bernanke said the Fed could begin to slow its bond purchases by the end of the year. Since then, stocks have plunged and interest rates have spiked.