Tuesday May 26, 08:46 PM
US consumer confidence leaps to 8-month high
By Veronica Smith
WASHINGTON (AFP) - US consumer confidence leapt in May to an eight-month high, the Conference Board said Tuesday in a report offering fresh hopes of an end to the prolonged recession.
The business research group's consumer confidence index, based on a survey of 5,000 US households, spiked to 54.9 in May from 40.8 in April.
The reading was the highest since last September, when the collapse of Lehman Brothers (NYSE: LEH - news) accelerated a global financial crisis that has pushed the world economy into a severe downturn. Most analysts had expected a modest rise to 42.0 in May.
The report suggested consumers may be ready to emerge from their retrenchment and boost spending to lift the economy out of recession.
"Consumer confidence is the key to the economic recovery and people are starting to think the sun is coming out again," said Joel Naroff at Naroff Economic Advisors.
The surge in confidence came three months after the index had hit bottom in February at 25.3 points, the lowest level since tracking of the seasonally adjusted data began in 1967.
Almost all of the gains reflected hopes for the next six months as consumers viewed current conditions only moderately improved, according to the survey conducted through May 19.
"While confidence is still weak by historical standards, as far as consumers are concerned, the worst is now behind us," said Lynn Franco, the Conference Board's research director.
Franco said that the survey signaled that economic growth in the second quarter "is likely to be less negative than in the first."
In the first quarter, the world's largest economy shrank by a sharp 6.1 percent after a 6.3 percent contraction in the 2008 final quarter. The world's largest economy slid into recession in December 2007.
The present situation index showed that those viewing business conditions as "good" increased to 8.7 percent from 7.9 percent, while those claiming they were "bad" increased to 45.3 percent from 44.9 percent.
Despite a surge in the unemployment rate in April to a 25-year high of 8.9 percent, consumers claiming jobs were "hard to get" fell to 44.7 percent in May from 46.6 percent in April. Those saying jobs were "plentiful" edged up to 5.7 percent from 4.9 percent.
Households were much more optimistic about what lies ahead in the coming six months, particularly about the labor market.
Consumers expecting more jobs available soared to 20.0 percent from 14.2 percent, while those expecting fewer jobs fell to 25.2 percent from 32.5 percent.
Those expecting business conditions will improve jumped to 23.1 percent from 15.7 percent, while those anticipating a slump dropped to 17.8 percent from 24.4 percent in April.
Brian Bethune at IHS Global Insight, however, cautioned that consumer spending, which normally accounts for two-thirds of US output, was not poised for a rebound.
"We are still locked in the negative feedback loop of tight credit conditions ... and weak consumer demand for credit due to poor employment market conditions, downward pressure on household assets valuations, and high rates of home foreclosure," Bethune said.
"This will keep consumer spending basically dormant in the second quarter, and we expect a below-trend increase in consumer spending in the third quarter," he added.
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