June 28, 2006 | posted by Michael Baxter in Uncategorized |

In the US markets took a bit of a tumble yesterday with the Dow down 120 points. It’s that demon again - the rate of interest. We will know the worst this week, and as a result, markets are getting anxious. Yet the consumer, the very person that is supposed to be hit the hardest by these rate rises, doesn’t seem that bothered at all.

The US Consumer Confidence Index, as published by the Conference Board, rose in June to 105.7. That’s up a whole point. But actually, the jump is really more significant than that. The Conference Board also upped their score for May. If you were to read the reports from this time last month, you will have noticed that the index was a mere 103.2. For you see the Conference Board, like all the big compilers of economic statistics, revises its figures every month. Chances are, the figures for June will be revised next month. By then everyone will be looking at the July figures; the true implication of the June figures will be lost. So, to anticipate this omission in advance, by comparing the current June reading with the May score as it stood this time last month, you realise that in actual fact the index is doing very nicely.

Not that Capital Economics sees it this way. According to its international economist, Keith Gyles: “The months supply of unsold homes rose again in May to 6.5, from 6.1 before. Looking forward, it is this excess supply of housing that should drive the moderation in price growth we are expecting in the months ahead.” He concluded: “This data does not change our view that real consumption spending is set to slow further. For now the Fed and the markets are focused on the incoming inflation data, which guarantees at least one more rate rise. But, over the coming months, the focus should shift to the prospect of rate cuts in 2007 as the housing market continues to cool.”

Meanwhile, still with economics, there was more room for optimism from the land of Jurgen Klinsmann. The German IFO index of business confidence is up, and unexpectedly so. Apparently, it’s not only business expectations that are doing well. Manufacturing is expected to grow too, with the latest IFO survey on manufacturing implying growth of 10%, while even the German High Street is expected to see growth, after seeing a big jump in retail confidence. Actually the IFO retail index is still negative, but only just: 0.3 percent, compared to negative 15.7 percent in January.