Clinton rides the crest of US economy wave

Click to follow
As the Democratic Party's convention got into full swing, Americans gave President Clinton's management of the economy a vote of confidence. Consumer confidence has hit a six-year high, strengthening in August for the second month running.

Yesterday's unexpectedly buoyant survey results helped bolster the case for an increase in US interest rates - although perhaps not before November's presidential election - especially coupled with recent figures suggesting the economy is not slowing as much as the Federal Reserve had predicted.

Many Wall Street economists think there is a good chance of a move when the central bank's policy committee meets next month. It left the key Federal Funds rate unchanged at 5.25 per cent when it met last week.

According to the Conference Board, the business consultancy which publishes the monthly confidence survey, consumer attitudes might be "on an upward trend after remaining stagnant for more than a year". Confidence levels about current and future economic conditions have returned to their highest since early 1990.

Its consumer confidence index climbed to 109.4 in August from 107.0 in July and 100.0 the previous month. It touched a low of 47.3 in 1992 at the depth of the recession.

The only shadow this month was cast by a small increase to 23 per cent in the proportion of households saying jobs were hard to get. On the other hand, there was a small rise in the proportion expecting more jobs to become available during the next six months.

The surge in optimism has surprised analysts expecting the pace of growth to show signs of slowing in the run-up to the election. Although consumers helped account for GDP growth at an annualised rate of 4.2 per cent in the second quarter of this year, the high level of personal debt is likely to put the brakes on spending.

On Monday the Fed reported that US banks had tightened their standards on consumer loans for the second quarter running.

However, other evidence of the predicted pre-election slowdown in the US economy has been scarce. In particular, job creation has picked up steam this year, leaving the unemployment rate at the level below which wages and inflation would pick up.