A widely watched indicator of consumer confidence unexpectedly rose for the second straight month in January, hinting that the US economy would continue to grow in the first half of 2005, but at a slower pace.
The Conference Board, a New York research group, reported yesterday its index of consumer confidence rose by 0.7 point to 103.4 in January, up from a revised 102.7 in December.
Economists had been expecting the index to fall to 101.3, in part because of their own concerns about job growth, the ballooning trade deficit, and the war in Iraq. ''I had been expecting those issues to flow into the January number," BMO Nesbitt Burns senior economist David Watt said.
Instead, Watt and other economists were pleasantly surprised by consumers' upbeat view of the economy, particularly the labor market.
Investors were also in a good mood yesterday, sending major stock indexes higher as better-than-expected earnings from blue-chip companies tempered concerns about the upcoming Iraqi elections and high oil prices.
Lynn Franco, director of the Conference Board's research unit, said ''consumers' short-term outlook remains favorable and suggests the economy will continue to expand throughout the first half of the year."
That said, the group's forward-looking index declined in January, signaling a slowdown in economic growth. The so-called expectations index fell from 100.7 to 98.4.
''For many economists, that's probably the most important part of this report," said Anthony Chan, senior economist at JPMorgan Fleming Asset Management in Columbus, Ohio. Chan said he expects the US economy to grow at a rate of 3.5 percent in 2005, down from an estimated 4 percent in 2004.
Chan and other economists said consumer trepidation about the future was likely tied to the nation's high level of household debt and expectations of gradually rising interest rates.
The confidence index is important to Wall Street because spending by individuals makes up about two-thirds of all economic activity in the United States. The index is based on a monthly survey of 5,000 households and compares results with its base year, 1985, when it stood at 100.