In July, amid a continuously tight labour market and declining inflation, U.S. consumer sentiment reached a two-year high, improving the outlook for the economy in the short term.
However, the Conference Board survey released on Tuesday provided conflicting signals, indicating that the economy is still in trouble. Following significant interest rate increases from the Federal Reserve, consumers continue to worry about a recession over the upcoming year.
In the upcoming six months, more people intended to purchase a car or a home, while fewer thought they would buy large appliances like refrigerators and washing machines.
Additionally, consumers continued to say that they planned to spend less on luxuries like travel, entertainment, and gaming.
However, they anticipated higher expenditure on healthcare and home streaming services.
The idea that consumer spending was levelling down after climbing at its strongest rate in two years in the first quarter is supported by this. However, the survey's findings, along with information on inflation, the property market, and retail sales, increased hope that the economy would avoid a recession this year.
"We seem to be in an unusual eddy in this expansion, with consumer confidence up but consumer spending clearly leveled off," said Robert Frick, corporate economist with Navy Federal Credit Union in Vienna, Virginia. "Lower inflation is why confidence has surged, but Americans have become cautious, trimming spending and increasing savings."
The consumer confidence index published by the Conference Board improved from 110.1 in June to 117 this month, the highest figure since July 2021. Reuters polled economists, who predicted that the index would rise to 111.8.
All age groups experienced an uptick in confidence, with consumers under the age of 35 experiencing the biggest gains. Consumers with annual incomes of less than $50,000 and those earning more than $100,000 exhibited higher levels of confidence.
The risk of a recession among consumers over the coming year increased, but it remained below its recent peak earlier in the year. In comparison to June, when 69.9% of consumers felt a recession was "somewhat" or "very likely," this month's figure is at 70.6%.
The proportion anticipating improved business conditions over the following six months reached its highest level since January.
The survey was released as a two-day policy meeting between Fed officials got underway. After holding borrowing prices constant in June, the U.S. central bank is anticipated to increase interest rates by 25 basis points on Wednesday. Since March 2022, the Fed has increased its policy rate by 500 basis points.
Wall Street stocks were trading higher. The value of the dollar relative to a basket of currencies barely moved. Treasury prices dropped.
"This likely reveals consumers' belief that labor market conditions will remain favorable," said Dana Peterson, the Conference Board's chief economist.
The survey's so-called labour market differential, which is based on information on respondents' perceptions of how easy or difficult it is to find a job, widened to 37.2 this month from 32.8 in June, indicating that labour market conditions are still tight despite a slowdown in job growth. This indicator is correlated with the unemployment rate in the widely regarded employment report from the Labour Department.
Consumers' 12-month inflation forecasts decreased from 5.8% last month to 5.7% this month, which is the lowest number since November 2020.
However, the increase in inflation predictions wasn't enough to persuade more customers to spend a lot of money over the following six months. Additionally, although more households intended to purchase homes, they might encounter affordability issues.
After earlier slowdowns and outright falls in some places due to rising mortgage rates depressing demand, house prices have resumed their upward trajectory as a result of a restricted supply. The labour market is still robust, and home demand is once more on the rise. However, many homeowners have mortgage loans with interest rates under 5%, which lessens the motivation for them to list their homes for sale.
Separate data released on Tuesday by the Federal Housing Finance Agency revealed that monthly house prices increased by 0.7% in May after rising by the same percentage in April. In the year ending in May, prices increased 2.8% after increasing 3.1% in April.
"Low inventory and surprisingly resilient housing demand have kept home prices stable or rising in many markets," said Lisa Sturtevant, chief economist at Bright MLS in Alexandria, Virginia.
"But we are going to hit an affordability ceiling in many places which will happen just as more inventory begins to come on line later this year. As a result, it's possible that the 'bottoming out' of home prices is just the first half of a 'W-shaped' pattern in the market."
(Source:www.bloomberg.com)
However, the Conference Board survey released on Tuesday provided conflicting signals, indicating that the economy is still in trouble. Following significant interest rate increases from the Federal Reserve, consumers continue to worry about a recession over the upcoming year.
In the upcoming six months, more people intended to purchase a car or a home, while fewer thought they would buy large appliances like refrigerators and washing machines.
Additionally, consumers continued to say that they planned to spend less on luxuries like travel, entertainment, and gaming.
However, they anticipated higher expenditure on healthcare and home streaming services.
The idea that consumer spending was levelling down after climbing at its strongest rate in two years in the first quarter is supported by this. However, the survey's findings, along with information on inflation, the property market, and retail sales, increased hope that the economy would avoid a recession this year.
"We seem to be in an unusual eddy in this expansion, with consumer confidence up but consumer spending clearly leveled off," said Robert Frick, corporate economist with Navy Federal Credit Union in Vienna, Virginia. "Lower inflation is why confidence has surged, but Americans have become cautious, trimming spending and increasing savings."
The consumer confidence index published by the Conference Board improved from 110.1 in June to 117 this month, the highest figure since July 2021. Reuters polled economists, who predicted that the index would rise to 111.8.
All age groups experienced an uptick in confidence, with consumers under the age of 35 experiencing the biggest gains. Consumers with annual incomes of less than $50,000 and those earning more than $100,000 exhibited higher levels of confidence.
The risk of a recession among consumers over the coming year increased, but it remained below its recent peak earlier in the year. In comparison to June, when 69.9% of consumers felt a recession was "somewhat" or "very likely," this month's figure is at 70.6%.
The proportion anticipating improved business conditions over the following six months reached its highest level since January.
The survey was released as a two-day policy meeting between Fed officials got underway. After holding borrowing prices constant in June, the U.S. central bank is anticipated to increase interest rates by 25 basis points on Wednesday. Since March 2022, the Fed has increased its policy rate by 500 basis points.
Wall Street stocks were trading higher. The value of the dollar relative to a basket of currencies barely moved. Treasury prices dropped.
"This likely reveals consumers' belief that labor market conditions will remain favorable," said Dana Peterson, the Conference Board's chief economist.
The survey's so-called labour market differential, which is based on information on respondents' perceptions of how easy or difficult it is to find a job, widened to 37.2 this month from 32.8 in June, indicating that labour market conditions are still tight despite a slowdown in job growth. This indicator is correlated with the unemployment rate in the widely regarded employment report from the Labour Department.
Consumers' 12-month inflation forecasts decreased from 5.8% last month to 5.7% this month, which is the lowest number since November 2020.
However, the increase in inflation predictions wasn't enough to persuade more customers to spend a lot of money over the following six months. Additionally, although more households intended to purchase homes, they might encounter affordability issues.
After earlier slowdowns and outright falls in some places due to rising mortgage rates depressing demand, house prices have resumed their upward trajectory as a result of a restricted supply. The labour market is still robust, and home demand is once more on the rise. However, many homeowners have mortgage loans with interest rates under 5%, which lessens the motivation for them to list their homes for sale.
Separate data released on Tuesday by the Federal Housing Finance Agency revealed that monthly house prices increased by 0.7% in May after rising by the same percentage in April. In the year ending in May, prices increased 2.8% after increasing 3.1% in April.
"Low inventory and surprisingly resilient housing demand have kept home prices stable or rising in many markets," said Lisa Sturtevant, chief economist at Bright MLS in Alexandria, Virginia.
"But we are going to hit an affordability ceiling in many places which will happen just as more inventory begins to come on line later this year. As a result, it's possible that the 'bottoming out' of home prices is just the first half of a 'W-shaped' pattern in the market."
(Source:www.bloomberg.com)
