Tax Cut Fuels Rise In Consumer Optimism

by Mike Godfrey, Tax-News.com, Washington

22 July 2003

A rise in the key University of Michigan consumer sentiment index in July has been attributed to the recent package of tax cuts, analysts announced this week.

The index, which is used to gauge the level of consumer optimism in the United States, rose from 89.7 in June to 90.3 in July, a shade above an economists' estimate of 90.0. "All of the increase was due to a sharp rise in the current conditions index which probably occurred due to the implementation of the recent tax cut law," Patrick Fearon, economist at A.G Edwards and Sons, told Reuters.

The survey's preliminary current conditions index - which attempts to measure consumers' views of their current finances - also rose this month from 94.7 in June, to 102.8, market sources revealed.

However, the expectations index, which gauges consumers' evaluations of the twelve months ahead, dipped slightly from 86.4 in June to 82.7 in July, a fact which Fearon attributes to the recent unemployment figures which are now at their highest level in nine years. "Even people who are not laid off now could be getting concerned that they might be laid off down the road," he observed.

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