- The Washington Times - Wednesday, May 30, 2001

NEW YORK (AP) A string of interest-rate cuts, stronger financial markets and the prospect of lower taxes all helped lift consumers' confidence this month, analysts say.

The New York-based Conference Board said yesterday its Consumer Confidence Index rose to a greater-than-expected 115.5 in May, up from a revised 109.9 in April, despite continuing layoffs and surging energy prices.

"This is surprising," said Sherry Cooper, global economic strategist at Harris Bank. "I guess you just can't keep the American consumer down."

Analysts had expected a reading of 112.0 in May. The sharp rise, which reflects growing consumer optimism about jobs and the economy, also came after April's confidence numbers dipped from a reading of 116.9 in March.

But the May index is still weak in comparison to where it has been in the past five years, Miss Cooper said. Last May, the reading reached 144.7.

The Conference Board index, based on a monthly survey of about 5,000 U.S. households, is considered a key indicator because consumer spending accounts for about two-thirds of the nation's economic activity. The index compares results to its base year, 1985, when it stood at 100.

Eroding consumer confidence, hurt in part by higher energy costs and layoffs across the country, has contributed to two quarters of anemic growth for the U.S. economy. The Federal Reserve Board has cut interest rates five times this year in an effort to keep the economy from sliding into a recession.

In addition to the rate reductions, renewed vigor in the financial markets and a $1.35 trillion, 10-year tax cut that Congress approved Saturday also contributed to consumers' beliefs that the economy is poised for a rebound.

"Latest findings report rising confidence about job prospects over the next six months, but reveal growing concern about the current job market," said Lynn Franco, director of the Conference Board's Consumer Research Center.

The nation's unemployment rate jumped to 4.5 percent in April, a 0.2 percentage point increase from March, and businesses slashed payrolls by the largest amount since the country was last in a recession a decade ago. Many economists expect that when the government releases the employment report for May on Friday it will show that the jobless rate edged up to 4.6 percent.

Nonetheless, the confidence index showed no signs that consumers will curtail their spending, which points to continued economic growth, Miss Franco said.

Analysts also were impressed that continued layoffs failed to quash consumer sentiment.

"It seems reductions in interest rates and the rebound in the stock market have offset negative developments in the labor markets and left individuals feeling better about the economic situation," said Michael Moran, chief economist at Daiwa Securities.

Another report released yesterday also showed signs of a strengthening economy.

The Commerce Department reported that consumer spending rose by 0.4 percent in April, following a 0.2 percent increase the month before. April's rise in consumer spending marked the biggest increase since January.

The Commerce Department report also showed that Americans' incomes, which include wages, interest and government benefits, nudged up 0.3 percent in April, down from a 0.5 percent rise in March. The increase in April income was the smallest since November.

In April, consumers' spending on nondurable goods, such as food and clothes, rose by 0.7 percent, compared with a 0.3 percent drop in March.

Spending on services rose by 0.5 percent in April, down from a 0.7 percent gain the month before. The services category includes such things as gas and electric utilities, medical visits, bus and train fares and rent for housing.

But spending on durables costly manufactured goods expected to last at least three years, such as cars and washing machines fell by 0.6 percent in April, on top of a 0.7 percent decline in March.

"What will be interesting is to see if the increase in consumer confidence shows up in strong consumer spending in the month of May," said Hugh Johnson, chief investment officer at First Albany Corp.

Consumers were more optimistic about the outlook over the next six months, the Conference Board said. The percentage of consumers expecting a pickup in business conditions rose from 14.1 percent to 16.8 percent.

They were also more upbeat about future employment prospects. Of the consumers surveyed, 13.8 percent expect more jobs to become available, up from 12.3 percent last month. Those expecting fewer jobs declined from 22.9 percent to 19.9 percent.


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