US consumers hold their nerve

US consumers were in slightly less optimistic mood in August, but their legendary spending shows no sign of slowing down, according to the latest data.

The University of Michigan's closely watched consumer sentiment index for August dipped from 90.0 in July to 89.3, below the 90.5 predicted by Wall Street analysts.

The decline was attributed to worries about a stagnant jobs market and high fuel prices, which have climbed in recent weeks due to strong holiday season demand.

But the Michigan index remains some 12 points above the nine-year low it touched in mid-March, during the early stages of the war in Iraq.

And separate government figures showing that consumer spending surged by 0.8% between June and July, the biggest monthly increase since March, suggested that consumer spending is likely to remain solid.

Tax incentive

Consumer spending is of critical importance to growth in the US, accounting for two thirds of economic activity.

The US government said the increase in spending reflected tax cuts pushed through earlier this year by President George W. Bush.

Higher levels of spending have also been encouraged by hints from the US Federal Reserve, the country's central bank, that interest rates will remain at their current 45-year low of 1% for some time to come.

The latest broadly encouraging snapshot of consumer activity will reinforce the view that the US may finally be emerging from a three-year spell of sluggish growth - tipping over briefly into outright recession - which began three years ago.

Hopes of an imminent rebound received a boost on Thursday when official figures showed that the world's biggest economy grew by a better than expected 3.1% in the three months to June.