Tue Jul 27, 2004
By Pedro Nicolaci da Costa

NEW YORK (Reuters) - U.S. consumers became more encouraged about the economy in July as companies showed a greater willingness to hire, a report said on Tuesday.

The Conference Board, a private forecasting group, said its measure of consumer moods climbed to 106.1 in July -- the highest since June 2002 -- from a revised 102.8 in June. Wall Street analysts had looked for a rise to 102.0 in the index, which has now risen for four straight months.

The percentage of consumers who said jobs were hard to get dipped to 26.0 from 26.2, while those saying jobs were plentiful increased to 19.8 from 18.3.

"The spring turnaround has been fueled by gains in employment, and unless the job market sours, consumer confidence should continue to post solid numbers," Lynn Franco, Director of the Conference Board's Consumer Research Center, said in a statement.

While confidence data are generally perceived as a proxy for future spending, some analysts argue there has been little correlation in recent years between what consumers tell surveys and how they actually spend their money.

Consumer spending accounts for two-thirds of U.S. economic activity. But even as confidence has improved in recent months, spending has shown clear signs of a slowdown, with retail and auto sales lagging considerably in June.

It remains to be seen whether that slower clip of growth last month was merely a blip in an otherwise healthy recovery -- as Federal Reserve policy-makers have argued -- or whether it was the start of a trend.

The answer to that question is likely to determine the speed at which the U.S. central bank raises official interest rates, with widespread repercussions for individuals and businesses.

For now, the Conference Board's present situation index rose to 106.5 from 105.9 in June, while the expectations index soared to 105.8 from 100.8, boding well for the near-term outlook.

"The expectations component correlates best with spending growth, and it's at a level consistent with over four percent consumption growth," said Jim O'Sullivan, senior economist at UBS in Stamford, Connecticut.

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