If consumers are so happy, why aren't they out shopping?

Last week, the Conference Board said consumer confidence had surged to a six-year high in August. At the same time, summer retail sales have been softening.

Most economists feel the divergence is temporary, and some believe it is a statistical mirage. No one is quite sure what happens next or how much the Federal Reserve will consider this when it takes another look at interest rates Sept. 24.

"The weakness in sales, if it exists, is very recent," said James W. Coons, chief economist at Huntington National Bank, Columbus Ohio. "This area has been strong this year."

Mr. Coons thinks rising consumer confidence is tied mostly to the job market's good health and that the Fed is likely to be influenced strongly by the August employment report due out Friday.

Still, the economist said he thinks the economy is slowing, with few inflationary pressures building, and that as a consequence the Fed will not raise rates at its next meeting or for the remainder of this year.

"In fact, by some guide sticks, the federal funds target is above equilibrium by 50 basis points," he said. "Therefore, the next move, at some point, ought to be down rather than up."

A slowing of lending activity during the past year may help keep the Fed on hold. "Credit growth has historically been a good leading indicator of inflation," Mr. Coons said. "I don't see inflation building, as long as credit growth is coming down."

Increased consumer confidence does not always translate into greater retail sales and economic strength, according to Christopher Low, senior economist at HSBC Markets, New York.

"Confidence can stem from a surge in income or other things, like the Olympics or the political conventions," he said. "These are great morale boosters, but they do not give consumers the wherewithal to overcome historically high levels of indebtedness."

Furthermore, if seasonal factors play a part, Mr. Low said, consumer confidence may decline in September, as it did last year.

Other economists, however, sees hints of strength rather than weakness.

"The confidence numbers probably have created a little nervousness at the central bank about a pickup in consumption in the second half of the year," said Anthony Chan, chief economist at Banc One Investment Advisors, Columbus Ohio.

"It suggests that at least a token credit tightening move by the Fed may be called for by the end of the year to ensure that the long-awaited economic slowdown actually happens," he said.

"Fundamentals of consumer spending have been strong, such as income growth and the level of consumer happiness about the economy," said Rosanne M. Cahn of CS First Boston Corp., "but they were in conflict with the weaker July retail sales numbers."

"I'm inclined to think we will see stronger retail sales numbers for August, and in fact I am seeing anecdotal evidence of this," she said. "July retail sales were the aberration."

Ms. Cahn anticipates a Fed rate increase at the meeting scheduled Nov. 13, unless economic data due in the next several weeks present a compelling case for tightening credit at the September meeting of the central bank's policymakers.

Unless it worsens, the recent weakness in the important housing sector will not keep the Fed from raising rates, she said. "The major issue is going to continue to be whether the consumer is spending or not."

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