Consumer Confidence Jumps Ahead of Geopolitical Woes

Consumer Confidence jumped 4.5 points to 90.9 in July, the highest level since October 2007. The rise lends credence to the stronger jobs data, but the survey cutoff was before geopolitical events took an ominous turn. 

Consumer Confidence Soars During the First Half of July

Consumer Confidence rose by a larger-than-expected 4.5 points in July, as more consumers expressed optimism about both current and future economic conditions. Questions related to employment conditions posted notable gains in July and were responsible for most of the improvement in the survey. Consumers were also more upbeat about the prospects for income growth, but expressed less enthusiasm for purchasing cars, homes and major appliances. 

The Conference Board noted that the cutoff date for the preliminary results was July 17, which was the very day that Malaysia Airlines flight 17 was shot down over Ukraine. Moreover, Israel began its ground offensive in Gaza later that day. How these events will influence the confidence numbers remains to be seen. The stock market quickly shook off concerns about geopolitical events and moved to new highs. The daily consumer confidence numbers from Rasmussen show only a brief pull back in confidence in the days following these events. 

Stronger Confidence Numbers Likely Reflect Increased Hiring

The strong increase in consumer confidence makes the first half’s improvement in job growth appear a bit more credible. Improving attitudes about the labor market were responsible for nearly all the rise in the present situation index. The proportion of consumers stating that jobs were plentiful rose 1.3 points in July, while the proportion that said jobs were hard to get remained unchanged at 30.7 percent. The labor market differential, which measures the difference between these two series, fell 1.3 points to -14.8 and is down 6.2 points so far this year. 

Consumers also expressed more optimism about future employment conditions, with the proportion stating that they expect more jobs to be created over the next six months rising 2.8 points to 19.1 percent, and those expecting fewer jobs falling 2.0 points to 16.4 percent. 

The improvement in employment conditions is also evident in expectations for income growth, although to a lesser degree. The proportion of consumers expecting their income to increase over the next six months rose 0.6 points to 17.3, while the proportion expecting their income to decrease fell by 0.4 points. Both series have improved modestly this year. 

Buying plans generally declined in July, which may not be all that meaningful for retail sales. July is a shoulder month for consumer spending, coming ahead of back-to-school sales and end-of-the-model year car buying. The 6.3-point rise in expectations may be more meaningful for actual spending. The 1.0-point drop in plans to purchase a home is more worrisome, however, as it takes the series to its lowest level this year and follows disappointing news on new home sales and pending home sales.