Consumer Confidence and Spending Up in April

Is the worst of the recession behind us?

The Conference Board reported that its Consumer Confidence Index shot up to 39.2 from a revised 26.9 in March. The reading marks the highest level since November’s 44.7. However, the index remains well below year-ago levels of 62.8. The April gains were fueled by “a significant improvement in the short-term outlook,” Lynn Franco, director of The Conference Board Consumer Research Center, said. She added that the index measuring how consumers currently feel, which posted a moderate gain, signaled that “conditions have not deteriorated further and may even moderately improve in the second quarter.” The Present Situation rose slightly to 23.7 from 21.9 in March.

Although there was a welcome gain in consumer spending, the U.S. economy still struggled in the 1Q. The Commerce Department said the nation’s gross domestic product shrank at a 6.1% annual rate, following a 6.3% contraction in the 4Q, as business inventories and exports declined sharply. The GDP has now declined for three straight quarters for the first time since 1974-75. In the latest report, the government said business inventories plummeted by a record $103.7 billion in the 1Q, as companies worked to clear out stocks of unsold goods in their warehouses. The drop in inventories can be viewed favorably, as it suggests that companies have gotten their inventories aligned with demand and have reduced the stock of unsold merchandise. The hope is that companies will soon have to start rebuilding inventories, thus creating jobs and economic growth.

On the bright side, consumer spending, which accounts for over two-thirds of U.S. economic activity, rose 2.2%, after collapsing in the second half of last year. This was boosted by a 9.4% jump in purchases of durable goods. The Commerce Department said the government’s $787 billion stimulus package of spending and tax cuts, approved in February, had little impact on the 1Q GDP.