Growth signs come in survey

Published: Wednesday, January 26, 2005 at 6:01 a.m.
Last Modified: Tuesday, January 25, 2005 at 10:11 p.m.
A widely watched indicator of consumer confidence unexpectedly rose for the second straight month in January, hinting that the U.S. economy would continue to grow in the first half of 2005, but at a slower pace.
The Conference Board, a New York-based research group, reported Tuesday that its index of consumer confidence rose by 0.7 point to 103.4 in January, up from a revised 102.7 in December.
Economists had been expecting the index to fall to 101.3, in part because of their own concerns about job growth, the ballooning trade deficit and the war in Iraq. "I had been expecting those issues to flow into the January (consumer confidence) number," BMO Nesbitt Burns senior economist David Watt said.
Instead, Watt and other economists were pleasantly surprised by consumers' upbeat view of the economy, particularly the labor market.
Investors were also in a good mood on Tuesday, sending major stock indexes higher as better-than-expected earnings from blue-chip companies tempered concerns about the upcoming Iraqi elections and high oil prices.
The Dow Jones industrial average climbed 92.95 to 10,461.56, while the Nasdaq composite index rose 11.25 to 2,019.95.
Lynn Franco, director of the Conference Board's research unit, said "consumers' short-term outlook remains favorable and suggests the economy will continue to expand throughout the first half of the year."
That said, the group's forward-looking index declined in January, signaling a slowdown in economic growth. The so-called expectations index fell from 100.7 to 98.4.
"For many economists, that's probably the most important part of this report," said Anthony Chan, senior economist at JPMorgan Fleming Asset Management in Columbus, Ohio. Chan said he anticipates the U.S. economy to grow at a rate of 3.5 percent in 2005, down from an estimated 4 percent in 2004.
Chan and other economists said consumer trepidation about the future was likely tied to the nation's high level of household debt and expectations of gradually rising interest rates.
Separately on Tuesday, the National Association of Realtors reported that sales of previously owned homes dipped 3.3 percent in December to a seasonally adjusted annual rate of 6.69 million units, off slightly from November's strong pace of 6.92 million units.
For all of 2004, sales rose 9.4 percent to an all-time high of 6.68 million units as home buyers continued to enjoy some of the lowest mortgage rates in decades.
Sales of existing homes last year were well above the 6.10 million sold in 2003, the association said.
But analysts expect sales of both existing and new homes to decline slightly in 2005, while mortgage rates rise as the Federal Reserve continues its credit-tightening campaign to tame inflation.
Chan noted that any slowdown would be coming off of a fairly robust growth rate and so "it's nothing to get depressed about."
The consumer confidence index is important to Wall Street because spending by individuals makes up about two-thirds of all economic activity in the United States. The index is based on a monthly survey of some 5,000 U.S. households and compares results with its base year, 1985, when it stood at 100.
BMO Nesbitt Burns' Watt said he was especially encouraged by the Conference Board's current labor market reading.
The percentage of respondents saying jobs are plentiful rose to 20.7 percent in January, up from 19.4 percent. Those saying jobs were hard to get fell to 24.7 percent from 26.4 percent a month earlier.
Watt said the data signaled that employment may begin to grow at a faster pace and that "people aren't going to be as worried about making big purchases."
But consumers' outlook for the next six months was less upbeat. Respondents saying they expected business conditions to improve declined to 21.1 percent from a revised 22.4 percent in December, while those saying they expected conditions to worsen rose to 8.0 percent from 7.7 percent.
The jobs outlook was worse than the month before. Those saying they expected fewer jobs to become available in the coming months climbed to 15.5 percent from 15.3 percent. Those saying they expected more jobs to become available slipped to 16.3 percent from 16.4 percent.

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