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The U.S. economy may be on the verge of a breakout

October 18, 2015 By Dan Taylor

The U.S. economy may be on the verge of a breakout

Consumer sentiment had a big rebound in early October -- is the U.S. economy ready to surge?

U.S. consumer sentiment has just posted a massive rebound in early October, a surge in confidence that suggests that it’s possible a big surge is around the corner.

Even if one isn’t, it at least indicates the economic recovery is on track and economists can breathe a sigh of relief after a series of hiccups through the middle of this year that caused some concern about a return to the recession, according to a Reuters report.

There are some underlying problems that remain, particularly a strong dollar and flagging international demand that could hinder things a bit. But the rebound in consumer sentiment based on data from the University of Michigan as compared with last month give economists hope that the economy is headed upward.

The data shows that consumer spending is strong enough to keep the economy moving in the right direction despite the strong dollar and weak demand problems, which is good news after slowing growth in recent months.

The University of Michigan’s consumer sentiment index jumped from 87.2 last month to 92.1 in the first part of October, a giant leap that is certainly cause of cheer and optimism, and the sub-index for current conditions showed a similar rise, increasing from 101.2 to 106.7.

What does this mean? U.S. households aren’t pessimistic anymore about the future, and that means they’re willing to spend money on purchases they were putting off buying out of fear of the economy suddenly tanking. This is helped by rises in payroll numbers and cheap gasoline prices that have left consumers with more spending money.

It’s the most optimistic American consumers have been since 2007, before the crash dampened everyone’s hopes for the future.

Consumer spending makes up two thirds of U.S.e conomic activity, so this news is very big for the economy, and may help prop up problems in the industry. U.S. stocks gained on the news, and the dollar continued to strengthen.

Richard Curtin, who is the chief economist at the University of Michigan and is responsible for the Surveys of Consumers, posted the following statement on the University of Michigan’s website on the new numbers:

“The rebound in confidence signifies that consumers have concluded that the fears expressed on Wall Street did not extend to Main Street. Importantly, the renewed confidence did not simply represent a relief rally, but instead reflected renewed optimism. Personal financial expectations rose to their highest level since 2007, as did consumers’ views toward purchases of durable goods. While consumers anticipate a continued economic expansion, many expected strong headwinds from falling commodity prices, weakened economies in China and elsewhere as well as continued stresses on European countries. Perhaps the most important finding is that low inflation and continued job growth have enabled consumers to adapt to a slower and more variable rate of economic growth by varying the pace of their spending without losing confidence that the expansion will continue. Overall, the data still indicate that consumption will expand at 2.9% during 2016.”

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