Doubts on economy grow

After months of faltering growth – and confidence – spending is key to upturn.

While the US economy appears to be on the mend, Americans have become more worried about its course.

A decline in consumer confidence, and doubts in particular about where the economy will be in six months, show up in a new Christian Science Monitor/TIPP poll.

The reasons are as close as the nearest newspaper, with its often unsettling news these days. The Bush administration hammers on its proposal to invade Iraq. Stock market prices plunge – and soar – repeatedly. The economic recovery sputters. A few analysts even talk about a double-dip recession. The federal budget has returned to deficits, probably for years ahead.

A volatile economic mood

"There are unbelievable, incredible mood swings," says Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence in Oradell, N.J.

As TIPP surveyors quizzed 914 consumers nationwide last week, they found sentiment bouncing up and down with prices on the stock market. The component indicating consumers' outlook for six months ahead dropped 0.7 percentage points to 54.9 – still positive territory.

"US consumer confidence is pretty volatile," says Mr. Mayur.

Yet so far, the recovery continues – though at a more moderate pace than is usual for the first year after a recession.

Economists expect the rate of growth in the nation's real output of goods and services in the current quarter to triple the slow 1.1 percent annualized rate in the second quarter to a 3.3 percent rate – or better.

Spending fuels recovery

"There is no double-dip in prospect," maintains Jack Lavery of Lavery Consulting Group in Washington Crossing, N.J. But, he notes, "paranoia abounds."

Supported by consumer spending, the economy has grown at an average 3 percent rate for the past three quarters. One key element has been car sales. They reached 18.7 million units in August, the second-best month in history.

But sales at major retail chains were up a slim 1.1 percent from a year ago.

Some economists are suspicious that the fast pace of auto sales, supported by zero-percent financing, cannot continue. They are hoping business-capital investment will kick in if auto sales slow.

Last Friday's employment numbers indicate the recovery is not jobless, though also not a vigorous job-creator. Non-farm payroll employment rose 39,000 in August, about what was expected.

That growth occurred in the public sector – in governments, not in private business. But July's employment gain was revised upward to 67,000 new workers from 6,000. The unemployment rate in August dipped to 5.7 percent from 5.9 percent the month before.

Noting that consumer spending accounts for two-thirds of economic activity, Mayur sees consumer confidence volatility as not portending well for the economy. But he admits the daily swings in mood restrain his ability to foresee the future.

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