CONFIDENCE INDEX Consumers begin to trust economy

A survey indicates Americans took the recent interest rate increase in stride.
WASHINGTON (AP) -- Consumers' spirits brightened over the past month as Americans felt better about the economy's prospects, an encouraging sign for the nation's economic well-being.
The AP-Ipsos consumer confidence index climbed to 92 in July, up from 91.3 in June. The latest reading -- taken after the Federal Reserve's first interest rate increase in four years and a disappointing employment report -- indicated that consumers took both pieces of news in stride, analysts said.
"I think the Fed has done a masterful job at packaging and communicating its interest rate increase in a manner that is nonthreatening to consumers and to investors," said Carl Tannenbaum, chief economist at LaSalle Bank.
Economists believe the improvement in confidence reflects a number of factors: a retreat in gasoline prices, somewhat less anxiety over the situation in Iraq and the fact that the economy continues to add jobs, albeit at a slower pace.
Positive view
The latest snapshot of consumer sentiment also shows that Americans' view of the economy is considerably more positive compared with a year ago, when the consumer confidence index stood at 80.5. Last summer, businesses were cutting thousands of jobs -- something that frustrated job seekers and made people who still had jobs worry that the ax could soon fall on them.
"The attitudes are consistent with the view that consumers -- while they might not have an excess of confidence -- they are getting more optimistic as this recovery becomes more solid," said Tim O'Neill, chief economist at BMO Financial Group.
The AP-Ipsos confidence index is benchmarked to a 100 reading in January 2002, the month the index was started by Ipsos.
Consumer behavior is watched closely by economists because consumer spending accounts for roughly two-thirds of all economic activity in the United States. Although retail sales were lackluster in June, analysts are hopeful they will rebound in July.
A measure of consumers' attitudes about economic expectations over the next six months, including conditions in the local areas where they live or work, rose in July to 96.3. That was up from a reading of 94.1 in June and represented a big improvement from a year ago, when this "expectations" gauge was at 64.
Economists believe the economy is on track to post in 2004 its best growth in two decades.
Campaign topic
The economy has been a prominent topic in the presidential campaign, with President Bush highlighting the economic rebound while rival Sen. John Kerry talks about a squeeze on the middle class.
A subindex tracking consumers' feelings about the jobs climate held steady in July at 104.4, unchanged from the previous month. Still, Americans feel better about labor market conditions than they did last July, when this measure was at 95.7.
July's overall consumer confidence index reading was based on interviews with 1,000 adults about the economy. Results of those interviews, which took place this week, had a margin of error of 3 percentage points. Those interviews came after two important pieces of economic news last week.
Last Wednesday, Fed Chairman Alan Greenspan and his colleagues, wanting to head off inflation, raised a key short-term interest rate to 1.25 percent, from a 46-year low of 1 percent. They indicated that future rate increases would be gradual.
Two days later, the government released the employment report for June, showing the economy added 112,000 jobs -- less than half the number that analysts had forecast. While disheartening, June marked the 10th straight month of payroll gains, a string that has restored about 1.5 million jobs and reduced overall losses on Bush's watch to nearly 1.1 million.