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Last Updated: Friday, 18 May 2007, 16:29 GMT 17:29 UK
US consumers feel perkier in May
US shoppers
The economy should keep growing if consumers keep shopping
US consumers have turned out to be surprisingly optimistic in May, and have been given a lift by a strong jobs and stock market, figures have shown.

The Reuters/University of Michigan consumer sentiment index was at 88.7 in May, up from 87.1 at the end of April.

Analysts had expected high petrol prices and concerns about a weakening housing market to have hit exuberance.

However, consumers now seem to have adjusted to the petrol prices and are set to continue spending, they added.

"What this suggests is that people are too pessimistic about the consumer," said Larry Smith of Third Wave Global Investors.

"While the housing situation is negative, there's another part of the equation which is more important than housing and that is employment."

Double sided

A shortage of skilled labour has helped buoy wages, even though fewer jobs are being created, making it easier for many consumers to keep on spending.

At the same time, Wall Street is enjoying a strong run, and the Dow Jones Industrial Average index of leading US shares climbed to a record in Friday trading.

"The stock market doing better is also making people feel a little more positive about the economy," said Gary Thayer, chief economist with AG Edwards & Sons.

Roll over

However, analysts also warned that the US economy was not bullet-proof and a sudden spike in oil prices or tumble in share prices could very easily spook shoppers and cause them to halt spending.

Consumers are the biggest driver of economic growth and any significant slowdown in spending, would have a significant impact on the wider US economy.

"Whenever sentiment rolls over, it can be various things," said Richard Williams of Analytic Partners.

"Right now it's too early in this pattern to know what's happening. This could be an early turning point, or it could be just noise on its way up, up higher."




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