High interest rates aren’t souring Americans’ moods: A key measurement of consumer confidence just shot up to a level not seen since July 2021.
The Conference Board’s monthly Consumer Confidence Index hit 117 in July, rising from 110.1 the month before, according to new data released Tuesday. The index increased for the third consecutive month, bounding even higher after a sharp swing upward in June.
Economists were expecting the index to climb to 111.8, according to consensus estimates on Refinitiv.
A strong labor market and cooling inflation are helping to keep Americans upbeat about both the current and near-term prospects of the economy, according to the report.
“Headline confidence appears to have broken out of the sideways trend that prevailed for much of the last year,” said Dana Peterson, chief economist at the Conference Board, in a statement Tuesday. “Greater confidence was evident across all age groups, and among consumers earning incomes less than $50,000 and those making more than $100,000,” she said.
While recession fears are still in the back of consumers’ minds — the proportion of consumers who think a downturn is “somewhat” or “very likely” ticked up to 70.6% from 69.9 up from 69.9% — a closely watched indicator is no longer flashing warning signs.
Both components of the headline gauge not only recorded gains for July, but marked some milestones: The present situation index reached a level of 160, the highest since March 2020; and the expectations index bumped up for a second consecutive month, landing at 88.3, which is well above the 80 level that historically signals an impending recession.
The Conference Board’s confidence index and the University of Michigan’s twice-a-month consumer sentiment index are two leading gauges of consumers’ attitudes toward the current and future strength of the economy. Although the two indexes typically track similarly over time, the Consumer Confidence Index is more influenced by employment and labor market conditions, while the Michigan sentiment index has a greater emphasis on household finances and the impact of inflation.
“The better-than-expected increase in the Conference Board’s measure of consumer sentiment does reduce our subjective odds of a recession occurring in [the fourth quarter]; historically, confidence reflects where we are in the business cycle,” Ryan Sweet, chief US economist with Oxford Economics, said in commentary issued Tuesday.
‘Times are getting better every day’
As the economy recovered from the pandemic last year, consumers shifted away from spending on goods to putting their money and time toward services and out-of-home experiences. That put even greater pressure on the leisure and hospitality sector and other related industries to hire more workers and try to fully recover from the cavernous job losses at the outset of the pandemic.
While Fed officials are hoping to tamp down some demand to help rein in inflation, they also want to achieve a soft landing by having price stability without causing a recession.
Consumer spending, which is a key driver of US economic activity, has eased somewhat in recent months but remains resilient. The Commerce Department on Friday will release the latest data on consumer spending alongside a critical inflation gauge for the Fed.
“The Fed didn’t take away enough punch as the party for the US economy rocks on and on and on,” Chris Rupkey, chief economist for FwdBonds, said in a statement. “The Fed’s rate hikes haven’t broken the consumer’s spirit yet. Many workers are on strike for higher wages and the bills on student loan debt are coming any day now, but consumers overall are bullish on America. It’s summer time and the times are getting better every day. Here comes Barbie, time to party.”
The Fed on Wednesday is expected to announce that it will raise its benchmark interest rate by another quarter point.
