Consumer confidence up, but people still fear for their finances
Consumer confidence picked up in the month of August at the same time people were feeling gloomier about their own finances.
Only one-in-four households expect their finances to improve, according to a Reuters/University of Michigan poll.
“The improvement was due to a reduction in their debt levels and an increase in the value of their assets, primarily because of rising stock prices and home values,” said Richard Curtin, the survey’s chief economist.
“Nonetheless, consumers anticipate a rocky economic road ahead. Small wage increases, rising food prices, slowly declining joblessness, higher taxes, and an overall economy that will not expand continuously but suffer some setbacks over the next several years.”
Savings rates slipped in August to 3.7 percent from 4.1 percent in July and consumer spending rose due to an increase in gas prices.
“Consumer spending accounts for 70 percent of U.S. economic activity and the second straight month of increase mostly reflected higher gasoline prices, which rose 28.2 cents per gallon last month,” CNBC reports.
Business activity in the Midwest contracted for the first time since September 2009, as new orders sank.
“The Institute for Supply Management-Chicago business barometer fell to 49.7 from 53.0 in August. Economists had forecast an unchanged reading of 53,” CNBC reported.
“A reading below 50 indicates contraction in the regional economy.”
Fitch rating agency warned in a memo that the impending fiscal cliff is the “single biggest near-term threat to the global economic recovery.”
“Most of the measures scheduled to take effect at the start of 2013 would reduce U.S. growth by $800 billion, or 5 percent, on an annualized basis, Fitch said, citing the U.S. Congressional Budget Office,” Reuters reported.
“We therefore think the cuts will be pared back to a more manageable 1.5 percent of GDP,” Fitch said, noting that they did not believe a full fledged belt-tightening would occur.
Many business leaders have warned about the damage to the economy that will occur if Congress fails to take action on the “fiscal cliff,” which would result from across-the-board budget reductions and expired tax cuts.
Former Secretary of Labor Robert Reich, meanwhile, contends that the Federal Reserve’s latest round of quantitative easing was a good move on the economy and will have positive effects for unemployment.
He wrote on his website, “Hello? Can we please stop obsessing about the federal budget deficit? Repeat after me: America’s #1 economic problem is unemployment. Our #1 goal should be to restore job growth. Period.”
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