We all know that consumers have been more confident lately, but now we know just how much.
According to a closely watched survey by the Conference Board, trillion-dollar tax cuts and a strong labor market making Americans feel better off helped push up its consumer confidence index from 127.9 in July to 133.4 in August. This was the highest level since 2000.
Households appear to be confident about the future, too, despite the prospect of a trade war with China pushing up prices in the shops, with the Conference Board witnessing increases in its expectations index, as well as its present situation one.
“Expectations, which had declined in June and July, bounced back in August and continue to suggest solid economic growth for the remainder of 2018,” Lynn Franco, director of economic indicators at The Conference Board, said. “Overall, these historically high confidence levels should continue to support healthy consumer spending in the near-term.”
As for jobs and wages, consumers were buoyant, brushing off concerns that inflation is starting to eat into incomes. Indeed, the proportion of respondents claiming jobs are “plentiful” was virtually unchanged at 42.7 percent, while the proportion who think they are “hard to get” declined from 14.8 to 12.7 percent.
At the same time, the percentage of consumers expecting an improvement in their short-term income prospects rose from 20.4 percent to 25.5 percent, while the proportion expecting a decrease declined, from 9.4 percent to 7 percent.
Retailers will no doubt be hoping that strong consumer confidence will continue to translate into higher spending at the tills. Consumer spending jumped by 4 percent in the second quarter and that has been showing up in a raft of retailers’ earnings in the past couple of weeks.
Retail giant Walmart, Inc. reported the best sales in a decade in the second quarter, while Target Corp., Urban Outfitters, Inc., T.J. Maxx and Kohl’s Corp. are among other retailers that have been benefiting from Americans feeling better off.
However, the outlook may not be all rosy as Michael Pearce, senior U.S. economist at economic consultancy Capital Economics, noted that while both the Conference Board’s present situation and expectations indices rose in August, the former has increased much further than the latter in recent years.
“The gap between the two, which has often hit its widest point in advance of past economic downturns, is the largest it has been since 2001,” he said.
“So while the strength of confidence is an encouraging sign that consumption growth will remain strong over the rest of this year, it reinforces the bearish signal from the yield curve, which we expect will invert next year, with an economic slowdown not far behind.”
Another respected consumer sentiment index from the University of Michigan, released earlier this month, fell to an 11-month low of 95.3 in August, in contrast to the Conference Board’s findings. It cited households’ worries over rising inflation outpacing wage growth.