US economy grows despite housing, energy strains

27 June 2008 19:05  [Source: ICIS news]

WASHINGTON (ICIS news)--Despite low consumer confidence, the continuing housing slump and record energy prices, the US economy is expanding on the strength of consumer spending and income gains, a top chemical industry economist said on Friday.

 

Kevin Swift, chief economist at the American Chemistry Council (ACC), noted that economic reports this week were mixed, with consumer confidence down sharply but household incomes and spending increasing.

 

“Consumer confidence tanked this month,” Swift said. “This is not surprising given the steep declines in home prices and record high energy prices.”

 

“On a positive note, consumer spending improved with the surge in personal income from federal stimulus checks,” Swift said, referring to the some $150bn (€94.5bn) in economic stimulus payments of $600-$1,200 per household that the US government began sending out to taxpayers earlier this year.

 

However, Swift noted, even if the effect of those one-time federal payments is subtracted from May’s consumer spending data, the willingness of US citizens to spend their hard-earned cash showed an increase.

 

“Although the May figures are distorted by the rebates checks, underlying income and spending gains were somewhat healthy and above expectations,” Swift said.

 

US consumer spending is the principal driving force of the nation’s economy, accounting for as much as 70% of all commercial activity.

 

Swift also noted the statement by the US Federal Reserve Board earlier this week that, despite housing sector and energy woes, “overall economic activity continues to expand, partly reflecting some firming in household spending”.

 

Even so, growth likely will be modest going forward.  The Fed, the US central bank, said that “tight credit conditions, the ongoing housing contraction and the rise in energy prices are likely to weigh on economic growth over the next few quarters”.

 

Swift noted that oil prices have reached the $140/bbl range and are now fully 100% higher than just a year ago.

 

($1 = €0.63)

 

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By: Joe Kamalick
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