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US consumers appeared to more upbeat in January with the US consumer confidence index climbing to 74 from 69.9 in December. The news of positive traction gained on the employment from over the last few months appears to have increased the level of confidence in the US consumers, who seem to be willing to loosen their purse strings. Notwithstanding the increase in consumer confidence, it still continues to be well below the prerecession mark of 89. One of the key reasons behind the current surge in consumer confidence appears to be the stronger than expected job creation in December.

The rising consumer confidence was accompanied by an increased trade deficit on the back of an increase in imports of automobiles and oil, with exports taking a dip. The increase in imports into the US seems to suggest that the US consumers are upbeat and willing to increase consumption. A dip in exports on the other hand is perhaps reflects the realities of the Euro zone’s economic conditions and the emerging debt crisis. The trade deficit grew 10.4% to $47.8 billion.

Unfortunately, dampening demand for US goods from overseas could offset gains in increase in demand in the US. This could result in the US economic performance being compromised again. The prospective recession in Europe and slowing growth in Asia could dampen US exports and slowdown the pace of economic recovery in the US.

Imports into the US increased 1.3% since May and rose to around $225.6 billion. Part of the increase reflected an increase in demand in the US economy, the balance being due to hardened oil prices and increased import of oil as well. Quite strangely, the trade deficit with China fell to $26.9 billion and exports to China increased to $9.9 billion. The narrowing trade deficit in part was perhaps due to the rise in exports to China.

The US central bankers appear to feel that the US economy has commenced on a self sustaining improvement cycle and the need for further stimulus may not be there. The US Fed’s Richmond President feels that the last few rounds of stimulus money went towards fuelling inflationary pressures and did not help growth in any sustainable basis. The US Fed believes that the US economy could grow at the rate of around 2.3% in this year.

The US housing market appears to be headed for a lengthy adjustment process, with the recessionary phase having left behind oversupply and a tightening of lending norms leading to dampened demand as compared to earlier. Only substantial gains in real income adjusted to inflation made aver time will help patch the gap between demand and supply of the housing stock. This also means that the US economy will need to churn out jobs at a higher pace for the housing sector to see any major gains. As this is dependant upon the internal demand of the US economy as well as demand for US exports, it is subject to external risks.

However, for now it appears that the US consumer is more confident than previously and is willing to spend more, which is beneficial for the US economy as nearly 70% of its GDP is based on consumption expenditure.