Consumer confidence index rises again; adds to evidence of economic recovery.

WASHINGTON -- Consumer confidence rose smartly for the third straight month in May, boosting evidence of an economic rebound, the Conference Board reported yesterday.

The consumer confidence index of the New York-based business research group jumped to 71.6 from 65.1 in April as consumers surveyed said they were more upbeat about the present situation and the future. The index is based on a 1985 reading of 100.

The latest results continued a turnaround that began after the index hit a low of 47.3 in February and fueled predictions that the recovery was in danger of stalling the way it did last year.

"The consistent improvement in sentiment appears to leave little doubt that the economy is at long last recovering," said Fabian Linden, executive director of the board's consumer research center.

Mr. Linden added that the expectations component of the board's index has advanced to 95.9 from 63.5 since February, the kind of large gain that paralleled past increases in the business cycle.

Private economists welcomed the report but reacted cautiously, noting that when the index gave low readings at the beginning of the year, consumers were spending heavily and boosting retail sales. The key to sustaining consumer confidence and spending is still a combination of jobs and income growth, they said.

"If we don't get continued growth in employment, this economy could stall," said James Annable, chief economist for First National Bank of Chicago. "The real card in this game has yet to be played."

Norman Robertson, senior vice president for Mellon Bank in Pittsburgh, said the report was in line with recent statistical data showing a jagged recovery.

"You still find a lot of companies which are unwilling to say we're out of the recession," said Mr. Robertson, who forecasts U.S. growth of between 2.5% and 3% in the second half of the year.

"There's still a good deal of skepticism that this expansion will be any more durable than it was a year ago," he added. "People are waiting to see. It's a recovery that's got a lot of head wind and is struggling uphill."

Richard Peterson, chief economist for Continental Bank in Chicago, was more positive. "Consumers have been hearing better news, and they're willing to spend when they get the money," he said. "But they're not willing to go into debt."

Mr. Peterson said he expects the May employment report due out June 5 to show that nonfarm payrolls rose 100,000, helping to sustain a moderate rise in consumer's income and spending.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER