US consumer confidence rises

The jobs market is looking healthier

An unexpected rise in consumer confidence has boosted hopes of an economic recovery in the United States.

The closely watched University of Michigan consumer confidence survey suggests that in October sentiment rose to 89.4 - above economists' forecasts of 88.0 and higher than the reading of 87.7 in September.

Maintaining consumer spending, which makes up two-thirds of the US economy, is the key to continuing economic growth.

The increased confidence is mainly due to the strengthening job market, with government figures showing that the economy added 57,000 jobs in September.

It's almost inconceivable with the broad-based improvement we are seeing in activity that we won't see some job gains in coming months Anthony Karydakis, Banc One

This confirms that consumers are starting to feel an improvement," said Kurt Karl, head of economic research at Swiss Re.

"This is not a hard number of actual hires but it shows that consumers are sensing some good news on the job front and the income front."

The current conditions index, which measures how consumers feel about the economy now, rose to 102.2 from 98.4 in September.

However, the future conditions index - which may affect future purchase decisions - only rose to 81.2 from 80.8 in September.

Jobless recovery

The US economic recovery has been notable for the fact that so far few new jobs have been created to replace the 2m lost in the recession during 2001-2.

Many economists think that economic growth will have to reach around 4% annually - twice the current rate - to reduce the unemployment rate substantially.

But it is still unclear how fast this will occur - and whether it will happen in time to benefit President George W Bush in his re-election bid.

"It's almost inconceivable with the broad-based improvement we are seeing in activity that we won't see some job gains in coming months, but the question is how soon we get up to the kind of increases that cut into the unemployment rate," said Anthony Karydakis of Banc One.

A strong US economic recovery would also boost growth around the world, with an economic slowdown affecting both Japan and Germany, the second and third largest economies in the world.

Uncertain figures

Consumer confidence numbers have fluctuated over the past few months as uncertainty has continued over the strength of the US recovery.

Last month, a rival consumer confidence survey, carried out by the Conference Board, fell unexpectedly, precipitating a sharp one-day fall in US share prices.

The US economy is expected to show signs of much stronger growth in the third quarter of the year when GDP figures are released in two weeks' time.

The University of Michigan consumer sentiment survey is based on telephone interviews with 500 households over the course of the month on personal finances and business and buying conditions. The preliminary survey, released about midway through the month, is based on the first 250 interviews.