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Friday, 28 June, 2002, 15:17 GMT 16:17 UK
Consumers losing faith in US economy
Doubts over the US economic recovery are growing
Consumer confidence and spending has declined in the US, spelling trouble for the country's fragile economic recovery.

Personal spending fell by 0.1% in May, the first drop in consumer spending in the past six months - although consumer income was up 0.3%.

The biggest decline was in spending on expensive items such as automobiles and washing machines, which fell by 2.4%, after cheap financing deals came to an end.

Consumers account for two-thirds of the US economy, and their confidence is vital for the prospects of future economic recovery.

The US central bank left interest rates unchanged earlier this week, despite strong growth in the first quarter of 2002, because it is was worried that consumers might stop spending.

Consumer sentiment

And key surveys are pointing to a further slowdown in consumer spending.

The University of Michigan consumer sentiment index - which measures shoppers' willingness to spend - fell to 92.4 in May, down sharply from 96.9 in April but revised upwards from the preliminary figure of 90.8.

It was still the sharpest fall since 11 September.

The future expectations index - measuring views of the economic situation over the next year - had an even sharper fall, to 87.9.

The figures have exacerbated fears that the US economy's tentative recovery could be grinding to a halt, with fear of rising unemployment one of the key factors.

They follow data out earlier which showed a sharp decline in May retail sales.

Uncertain outlook

The US economy is continuing to emit contradictory signals.

Official figures say that it was growing at an annual rate of 6.1% in the three months to the end of March.

But more recent data suggest that the country might be facing a "double-dip" recession with sharply slowing consumer spending.

Another factor hanging over the economy is the size of the trade deficit and the plunging dollar, which will make imports more expensive.

The recent fall in the stock markets has also reduced personal wealth, which could make people more reluctant to spend.


Economic indicators

Fears and hopes

US Fed decisons

IN DEPTH
See also:

26 Jun 02 | Business
28 Jun 02 | Business
27 Jun 02 | Business
28 May 02 | Business
14 Jun 02 | Business
13 Jun 02 | Business
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