24/7 Wall St.

The International Monetary Fund’s new assessment of an improving U.S. economy may be right, and the effects appear to have been driven by the consumer confidence level. The agency yesterday downgraded growth for most of the large nations around the world for this year and next. It increased it expectations for U.S. gross domestic product in both years. The announcement is an indication that America has come closer to being the engine of the world’s economic expansion, a position is started to lose with the rise of the BRIC nations.

Now Europe has moved into recession, and China’s growth has slowed considerably. U.S. GDP has always relied heavily on consumer confidence, and sentiment is rising.

A new Gallup poll reports:

Gallup’s U.S. Economic Confidence Index regained positive momentum last week, after two consecutive weeks of slight declines. At -19, the index is now just two points below its four-year high, measured three weeks ago.

The improvement was broad and stretched across both political parties and independents.

It is impressive that high energy prices and ongoing trouble in the home value market have not suppressed the increase in optimism. Also, there is still little evidence that real wages are higher. The only concrete major economic indicator that has improved substantially is employment. The Gallup polls suggests just how powerful that improvement really is. The effect of 10% unemployment, and 17% unemployment and underemployment, may have been downplayed as an ingredient to the way Americans view their world, at least economically.

Rising consumer confidence already has begun to spur retail and auto sales. Either people have cut their credit leverage, or they believe the economy will continue to improve and they can take on more. Whatever the reason, economic confidence has moved back toward prerecession levels.

Douglas A. McIntyre