NEW YORK – A key index of U.S. consumer sentiment and a weekly measure of economic growth improved in early July, and analysts linked the upticks to factors including recent tax cuts and gains in home buying.
The University of Michigan (search)'s preliminary consumer sentiment index, a widely followed measure of consumers' mood, rose to 90.3 in July from a final reading of 89.7 in June, market sources said Friday.
Analysts said recently implemented tax cuts and a Federal Reserve (search) rate cut in late June heartened American consumers.
Meanwhile, the Economic Cycle Research Institute (search), a private forecasting group, on Friday said its weekly leading index rose to 126.8 in the week ended July 11, from a revised 124.9 the prior week, buoyed by rising home buying and increased money supply.
The index's growth rate, an annualized rate for the four-week moving average that evens out weekly fluctuations, rose to 9.7 percent, its fastest growth rate since May 1987, from a revised 8.5 percent the previous week.
All the increase in the University of Michigan's consumer sentiment index was due "to a sharp rise in the current conditions index, which probably occurred due to the implementation of the recent tax cut law," said Patrick Fearon, economist at A.G. Edwards & Sons in St. Louis, Missouri. "The Fed rate cut (in late June) probably was a help as well."
The survey's preliminary current conditions index, tracking consumers' views of their present financial situation, jumped to 102.8 in July from 94.7 in June, market sources said.
"People have a sense that government policy in general is geared toward getting the economy going," Fearon contended.
But a slip in the expectations index -- which measures attitudes about the 12 months ahead -- to 82.7 in July from 86.4 in June, may have been due to the rise in the June unemployment rate to 6.4 percent, reported on July 3.
"Even people who are not laid off now could be concerned that they might be laid off down the road," Fearon said.
The data elicited no discernible reaction from U.S. financial markets, but economists said it fit the notion that the economy is getting back on track.
"There is a recovery process, but it has been of modest proportions and is likely to remain that way for the indefinite future," said William Sullivan, senior economist and executive director at Morgan Stanley.