American Consumers Making and Spending Less, But Optimistic

How is the economy going? Different economic reports centered around consumers showed different directions today.

Though the credit crunch shows no signs of waning any time soon, the University of Michigan/Reuters Consumer Confidence Survey shows that consumers feel better about the economy than they have at any time since March.

The survey showed a consumer confidence index of 63.0 in August, up from 61.2 in July, and the highest mark since a reading of 69.5 in March.

Despite the positive consumer confidence report, there are other signs that the economy’s challenges could become tougher.

The U.S. Commerce Department reported today that while consumer spending increased slightly in July, the rate of increase was slower than in the previous month, despite an inflation increase that was the most for a monthly period in 17 years.

Spending by U.S. consumers slowed in July as the impact of federal stimulus checks faded and a pickup in inflation eroded Americans’ buying power.

The 0.2 percent rise in purchases matched forecasts and followed a 0.6 percent increase in June, the Commerce Department said today in Washington. Prices rose by the most in 17 years.

Part of the decline in purchases could be tied to a sharp decline in personal income, due primarily to the end of the economic stimulus checks that most consumers had received in June or May. According to the Commerce Department, personal income fell 0.7 percent during the month, the largest decline since August 2005. Adjusting for inflation, personal income fell 1.7 percent in July following a 2.6 percent drop in June.