Consumer confidence jumped in August to 101.1, versus an expected reading of 97.0. The change was driven by the expectations component and the present situation assessment, which rose to 86.4 and 123.0, respectively. This means the expectations component is solidly above the 80 level, which is the lower band of its range in a normal recovery.
The rise in the present situation was due to sentiment toward both business and employment conditions. Those who found “jobs plentiful” increased, even though those who found “jobs hard to get” also rose, but by a smaller amount. Those describing business conditions as “good” rose to 30.0% from 27.3%, but the number of people seeing them as “bad” was essentially unchanged at 18.4% from 18.5%. With regard to consumers’ expectations, sentiment toward viewing business conditions as “better” was higher at 17.3%, and expectations for “more jobs” were also higher at 14.2% from 13.5%. Those anticipating higher incomes also increased, to 18.8% from 17.1% in July, while those who expected a decrease in income fell slightly to 10.7% from 11.0%. The percentage of respondents planning to buy a home was again higher at 6.4%. Plans to purchase a new home was also a little higher at 1.4% from 1.1%.
This report for confidence in August, which had been expected to decline, was encouraging and suggests consumers’ situation continues to improve. Digging a little below the headline rate, we are not sure that the diverging trend between consumers’ view of the present situation and their expectations for the future—which has been a concern—has changed. Although the increases in expectations over the last two months clearly suggests some room for optimism. With regard to the present situation, this is the highest rate since August 2007. Yet, looking at consumers’ expectations, they have steadily been deteriorating since January 2015, and this is only the highest rate since October last year. While this isn’t particularly great, the expectations component has typically been the more volatile index of the two. Perhaps consumers are also taking the view on a more ‘one day at a time’ basis given the heightened level of uncertainty around the upcoming elections and the volatility in financial market activity. Gasoline prices in the month, meanwhile, have moved sharply higher compared to July, though they are still only back up to the prices seen in June, and they do not seem to have been a major drag this month. The consumer overall is in relatively good shape, with a high saving rate, income growth that is steadily improving, a much lower unemployment rate, with rising demand for labour and still low inflation. In short, while things are far from perfect for the U.S. consumer, this report was encouraging, and we hope it continues; consumers are steadily improving, and there is plenty of room for this to continue.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.