June 29, 2003	Sunday	Rabi-us-Sani 28,1424

WASHINGTON, June 28: The US economy appears to be getting a boost from falling prices that encourage consumer spending, according to data on Friday, but analysts say the outlook remains clouded by uncertain job prospects.

The Commerce Department reported that US consumer spending edged up 0.1 per cent in May, while personal income increased 0.3 per cent.

Because of a decline in prices, the “real” or inflation-adjusted rises in spending and income were even larger. Inflation-adjusted after-tax incomes rose 0.4 per cent in May, matching April’s gain as the largest since June 2002, the government said. Real consumer spending rose 0.3 per cent.

This was a very good report, especially when you look at the inflation-adjusted data, said Joel Naroff of Naroff Economic Advisors.

People are spending money — and not that cautiously. Given how wet the weather was in May in many parts of the country, it was surprising that anyone had any interest in visiting the malls. ... This report tells us that we can still count on consumers to hold up the economy.

The personal consumption expenditure price index fell 0.1 per cent in May. This inflation gauge, which Federal Reserve officials prefer over the consumer price index, is up 1.7 per cent in the past 12 months, matching 40-year lows.

On the other hand, a separate report showed that US consumer sentiment, which is often a harbinger of economic activity, remained somewhat weak in June.

The University of Michigan consumer sentiment index was 89.7 for the final June reading, compared with an earlier June estimate of 87.2. But that remained well below the reading of 92.1 in late May.

The lack of improvement in job prospects remains the primary concern of consumers, said Richard Curtin, head of the university’s consumer research team. Consumers nonetheless expect the economy to improve in the year ahead.

New jobless claims in the past week have remained above the key level of 400,000 that economists say will keep job growth from occurring, but the trend has been improving.

According to official figures this week, the US economy grew at a tepid 1.4 per cent pace in the first quarter of 2003, but many analysts see a high-speed rebound right ahead.

Dick Rippe, economist at Prudential Securities, said the income and spending figures are better than they appear.

The headlines on these releases are not very exciting and only show modest growth, he said. However, beneath the surface, it appears things are doing decently. ... If you recall that energy prices went down so much, these numbers are actually better than they first appear.

But more important, say analysts, is a massive $350 billion tax cut that begins to take effect July 1. Along with the impact of near-record-low interest rates, this should help a second-half acceleration.

Gina Martin, a Wachovia Securities economist, said consumers have been encouraged by low prices, but that with many households tapped out, the tax cuts are coming just in time.

Rebate checks to be issued in late July and August will provide additional cushion to consumer wallets, Martin said.

Price declines have acted as a quasi ‘tax cut’ for the last few months to hold consumers over until the real deal comes in July.

The hope is that the combination of lower interest rates and the tax cut that will be working its way into people’s pay stubs next month will build enough momentum to allow the economy to become self-sustaining, said Carl Tannenbaum, chief economist for LaSalle Bank.

But Sung Won Sohn at Wells Fargo Bank said predictions are just that, not reality.

Economists have been predicting a second-half rebound for each of the past three years, said Sohn. Hopefully, we won’t be disappointed again. —AFP