Growth in US consumer confidence fuels hopes for economic recovery and jobs

Confidence among US consumers is growing again, adding to hopes that tax cuts and record low interest rates are finally starting to pull the economy out of the doldrums and create new jobs.

Confidence among US consumers is growing again, adding to hopes that tax cuts and record low interest rates are finally starting to pull the economy out of the doldrums and create new jobs.

According to the closely watched Conference Board index, overall consumer confidence climbed to 81.3 in August from a revised 77 in July. Optimism about the medium term is growing even faster, with the index for conditions in six months' time jumping to 94.4, from 86.3 last month.

With consumer spending accounting for 70 per cent of US gross domestic product, confidence is arguably the decisive economic indicator. Though opinions of the current state of the economy fell this month to a miserable 61, the 5,000 households surveyed by the Conference Board expect the wages and jobs picture to improve steadily over the months ahead.

The jump in the consumer index is the latest pointer to a rebound in the US economy, which has helped lift the dollar in foreign exchange markets.

It came as the Commerce Department reported a 1 per cent jump in durable goods orders in July, the largest advance in six months. Sales of homes are also at record or near-record levels, spurred by the lowest mortgage rates in 30 years. Despite the recent upturn in rates, analysts believe the housing sector will stay strong.

According to General Motors, the world's largest car manufacturer, US car and light truck sales are running even higher than in July, when sales at an annualised rate climbed to 17.3 million vehicles, the best performance since December.

Meanwhile, Wal-Mart said it may register its largest monthly sales gain for a year, lifting its estimate for August sales to 6 per cent above the same month in 2002. The world's largest retailer said the increase reflected the latest cuts in withheld taxes and 2003 tax refunds of up to $400 (£254) per child.

Official statistics last week showed housing starts surged to a 17-year high and first-time claims for unemployment insurance declined to the lowest level in six months, while manufacturing in the Philadelphia area was expanding at its quickest pace in five years. The encouraging news has even led some economists to predict that the August unemployment figures, due next week, will show the economy created new jobs for the first time in six months.

The so-called "jobless recovery" has turned into the biggest domestic threat to the re-election next year of President George Bush, who has seen more than 2.5 million jobs disappear since he took office in 2001. The headline unemployment rate, despite a slight fall to 6.2 per cent in July, is close to a nine-year high.

But the price of tax cuts, recession, the war in Iraq and big increases in military spending has been a surge in the federal budget deficit. The Congressional Budget Office forecast yesterday the deficit would reach a record $401bn for the year ending 30 September.

Meanwhile, German business confidence rose to a 14-month high in August, adding to evidence Europe's largest economy may pull out of recession this quarter. An index of western German business sentiment increased for a fourth month to 90.8, from a revised 89.3 in July, the Ifo institute in Munich said.

A recovery in Germany, aided by the lowest interest rates in more than a century and Chancellor Gerhard Schröder's plans to cut taxes by €22bn (£15bn) next year, would help the 12-nation eurozone economy resume growth.