Rising Expectations Drive Consumer Confidence Upwards

A ten-point rebound in consumer expectations caused a closely-watched measure of consumer confidence to rebound beyond expectations in August. However, the component tracking consumer assessments of present conditions remains deeply pessimistic.

The Conference Board index climbed to 54.1 this month, after moderating to 47.4 in July. Equity markets, already trading higher since the open, moved upwards on the release, as the consensus among analysts was for a 47.9 reading.

“Consumer confidence, which had posted back-to-back monthly declines, appears to be back on the mend,” noted Lynn Franco, who directs the research.

The Expectations component improved just more than 10 points to 73.5 in August, marking its highest reading since December 2007. But the Present Situation index inched up only 1.6 points to 24.9.

“Consumers were more upbeat in their short-term outlook for both the economy and the job market in August, but only slightly more upbeat in their income expectations,” Franco said. “And, as long as earnings continue to weigh heavily on consumers' minds, spending is likely to remain constrained.”

Despite that more than 2 million people are filing for first-time jobless benefits each month, consumers' appraisal of the job market was more favorable this month, whether it be present conditions are future expectations.

Those saying jobs are “hard to get” fell to 45.1% from 48.5% , while those claiming jobs are “plentiful” increased to 4.2% from 3.7%. Moreover, those expecting more jobs in the months ahead increased to 18.4% from 15.5%, while those expecting fewer jobs decreased to 23.3% from 26.1%.

“The U.S. consumer continues to be hit-hard, though conditions are definitely moving in the right direction,” commented Ian Pollick, strategist at TD Securities.

Meanwhile, inflation expectations remain high: consumers expect that over the next 12 months, prices will rise 5.4%, down one-tenth from last month.

“On balance, this is a better-than-expected confidence report,” Pollick added. “An improving outlook for the future combined with a better labor sentiment does suggest future improvements in the index could be in the cards.”

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