Consumer confidence jumped in June to 98.0, versus an expected reading of 93.5. The change was driven by both the expectations component and the present situation assessment, which rose to 84.5 and 118.3, respectively. This moves the expectations component back 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 being less bad. Those who found “jobs plentiful” decreased, and those who found “jobs hard to get” decreased by more, to 23.3% from 24.5%. Those describing business conditions as “good” rose slightly to 26.9% from 26.1%, but those seeing them as “bad” fell significantly from 21.4% to 17.7%. With regard to consumers’ expectations, sentiment toward viewing business conditions as “better” was higher at 16.8%, and expectations for “more jobs” were also higher at 14.2% from 12.5%. Those anticipating higher incomes also increased, to 18.2% from 16.5% in May, while those who expected a decrease in income fell slightly to 11.5% from 12.6%. The percentage of respondents planning to buy a home was lower at 4.8%. Plans to purchase a new home was a little higher at 1.3% from 1.0%.
This report for June shows the highest level of consumer confidence since October last year. It is encouraging and a good omen for the upcoming June employment report being released next week. The consumer overall is in relatively good shape, with a high saving rate, income growth that is slowly improving, and a much lower unemployment rate, with rising demand for labour and still low inflation. This coupled with the still very low gas prices has provided a tremendous boon to their pocketbooks. Are things perfect, by no means, the volatility in the financial markets has been a concern and economic growth overall has been worryingly weak. Real GDP per capita, looked at using a 10-year CAGR, grew by just 0.4% in the last quarter—the lowest reading since 1950 and well below this historical median of 2.2%. In short, this report was encouraging and we hope it continues; consumers are definitely in better shape, but they still have plenty of room for further improvement.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.