Following a series of economic reports in the past few weeks
promising economic growth and more jobs, consumers’ confidence in
the economy rose in October, the University’s Surveys of Consumers
reported Friday.

The Index of Consumer Sentiment, which is released by the
University each month, rose to 89.6 in October from 87.7 in
September. Although consumers’ confidence is still lower than the
postwar high of 92.1, the increase would have been larger if
consumers did not continue to worry about future economic
prospects, the report states.

The results follow a federal government announcement Thursday
that gross domestic product rose 7.2 percent in the third quarter,
the largest such gain since 1984.

In a written statement, Surveys of Consumers Director Richard
Curtin said the nation’s economic outlook for the next year has
“improved considerably,” but he added that consumers are still
worried about longer-term prospects.

“The central issue for consumers is when they can anticipate
sustained gains in jobs and wages from the revitalized economy. …
If wage and job gains quicken in the months ahead, we could
anticipate a more complete restoration of consumer confidence
during the year ahead,” Curtin said.

Although consumers have recently increased spending – partly due
to extra pocket money they received from President Bush’s tax cut
program – two-thirds of consumers continue to rate current economic
policies as unfavorable, Curtin said.

Consumers also anticipate smaller gains in income next year,
Curtin added.

But Business School Prof. Nejat Seyhun said current economic
expansion is an almost certain sign that the nation has left behind
its economic struggles. He said the unemployment rate will soon
decline if the economy maintains a growth rate of 3 to 4
percent.

“The economy is expanding extremely fast,” he said. For job
growth to occur, “all that needs to happen is this expansion to
last another quarter or two,” he said.

Yet huge increases in productivity attained through
technological improvements could possibly lead businesses to avoid
hiring significant numbers of new workers, Seyhun said. He said
productivity gains will prevent the unemployment rate from dipping
below the pre-Sept. 11 level for a year or more.

Seyhun added that because of low interest rates, he does not
believe consumer spending will decrease in the months ahead. He
said the more relevant question is whether the growth rate in
spending can be maintained.

The Surveys of Consumers report states that consumer confidence
is high enough to encourage high consumer spending even if
employment does not increase. But if hiring does not pick up, the
increase in spending would be much smaller than the 6.6-percent
growth rate in the third quarter.

MBA student Rahul Gupta said he believes the increase in
consumer confidence indicates that the economy is improving, and
that consumers will spend more in the upcoming holiday season.

The Index of Consumer Expectations, which is a component of a
U.S. Department of Commerce index of economic indicators, also rose
from 80.8 in September to 83 in October, according to the Surveys
of Consumers report.

Consumers indicated that their financial situation has improved
due to increased income and the federal tax cuts, but Curtin said
they are less optimistic about future prospects.

But consumers also expect a lower inflation rate next year, and
low interest rates have brought vehicle and home-buying attitudes
back to record levels, he said. “Consumers more frequently cited
low mortgage rates in the October survey and were less fearful
about potential mortgage rate increases during year ahead,” he
said.

 

 

 

 

 

 

 

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