After a first quarter slump that appears weather-related, the economy appears to be picking up steam again. Economist Martin Feldstein sees faster growth ahead. Consumers are more confident, and the Index of Leading Economic Indicators is advancing.
America’s Move to Faster Growth. Output appears to be on track for the economy to grow at a healthy pace this year, according to Martin Feldstein, who chaired President Ronald Reagan’s Council of Economic Advisers from 1982 to 1984. The primary driver is the “wealth effect”—spending spurred by the rise in household wealth from increases in the value of homes and the value of financial assets. Spending should increase enough to raise the total GDP growth rate by at least one percentage point. “The US economy is now on a favorable path of expansion.”
Consumer Confidence Advances. The Conference board, the global research association working in the public interest, released its Consumer Confidence Index, which showed the index improved moderately in May. Consumers assessed the labor market more favorably, and expectations regarding the short-term outlook for the economy, jobs, and personal finances were more upbeat. On an absolute basis, the index remains in guarded territory by historic standards; nevertheless, the improving outlook is a reason for optimism.
Leading Economic Indicators Increase. The Conference Board released its index of Leading Economic Indicators (LEIs) for the U.S., which showed an increase for the third consecutive month. LEIs usually change before the economy as a whole changes; therefore, they are useful as short-term predictors of the economy. The pace of change was about the same as for the previous six months. In addition, the strengths among the leading indicators remain more widespread than the weaknesses.
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