Consumer Spirits Reach 6-Year High Report Rekindles Interest Rate Concerns

Consumers’ confidence in the U.S. economy unexpectedly strengthened in August, reaching its highest level in more than six years, according to a Conference Board survey.

The New York-based business research group’s index of consumer confidence rose to 109.4 for the month, from a revised 107.0 in July. The group initially said its index rose to 107.2 in July.

The surprisingly upbeat report, which comes amid signs that the economy may not be slowing as fast as economists and Fed policy-makers had expected, could set the stage for a rate increase as early as Sept. 24, when the Federal Reserve’s policy-making Open Market Committee next meets, analysts say.

“Perhaps the economy isn’t going to slow down as rapidly as anticipated,” said Sung Won Sohn, chief economist at Norwest Corp. in Minneapolis. “That raises the probability that Chairman Greenspan may have to pull the interest rate trigger fairly soon.”

Tuesday’s gauge of consumer confidence soared to its highest level since March 1990, when the index reached 110.6 - a few months before the U.S. economy fell into recession.

Still, the Conference Board’s report runs counter to a similar index released Aug. 16 by the University of Michigan. That economic indicator, which some analysts consider less volatile than the Conference Board report, suggested a small decline in August consumer sentiment.

Economists surveyed by Bloomberg Business News expected the index to fall back from July’s six-year high to 105.1 last month.

The Conference Board’s index averaged 100 for all of 1995, lower than the 101.2 average for the first eight months of 1996.

The measure uses 1985 as a base year of 100, and surveys about 5,000 households on their attitudes toward business conditions, jobs and their paychecks.

On the whole, Tuesday’s report showed little change in economic expectations from last month’s level. Most respondents said they anticipated conditions such as incomes, the business outlook and purchases of new cars and appliances, to remain about the same as in past months. A few more respondents felt jobs were harder to get this month than in July, 23 percent vs 22.4 percent last month.

Looking ahead, the confidence index gauging consumers’ expectations for the next six months increased to 97.7 from 95.0, while the index tracking their assessment of present conditions also advanced, reaching 126.9 from 125.0.

The Conference Board’s confidence index rose as high as 120.70 in February 1989, as the economic boom of the last decade was fading. The index touched bottom at 47.30 in February 1992, then started rising.