Deep Briefing

  • The Conference Board said Tuesday that its consumer confidence index rose to a six-month high in August, as improved expectations about price pressures and the business environment offset pessimism about the future job market.
  • The consumer confidence index rose to 103.3 from 101.9 in July, but the group said the index remains within a narrow range seen over the past two years. Optimism about the labor market weakened, with 17.5% of respondents expecting fewer jobs, up from 16.4% the previous month.
  • "Consumers' assessments of current labor conditions, while still positive, continued to weaken, and their assessments of the future labor market were more pessimistic," Dana Peterson, chief economist at the Conference Board, said in a statement. Noting the recent rise in the unemployment rate, she added, "Consumers were also less optimistic about future income."

Deep Insights

The Conference Board's report aligns with a similar survey by the University of Michigan earlier this month.

The University of Michigan survey found that consumer confidence rose in some aspects in August but was overall unchanged from July. Consumer spending accounts for about 70% of economic growth.

The university's consumer sentiment survey, released on August 16, showed improvements in personal financial expectations, with the five-year economic outlook reaching its highest level in four months.

Consumers are "unlikely to remain so optimistic," Oliver Allen, senior U.S. economist at Pantheon Macroeconomics, said in a note to clients Tuesday following the Conference Board report.

"Given the softening labor market, slowing real income growth, and the already low personal savings rate, which all make for difficult consumer fundamentals, both confidence and spending growth will weaken noticeably from here," Allen predicted.

The unemployment rate rose to 4.3% last month, up from 4.1% in June and 3.7% in January. Meanwhile, nonfarm payrolls increased by only 114,000 in July, below expectations and marking the smallest monthly gain this year.

The weakening job market prompted Federal Reserve Chair Jerome Powell to signal last Friday that the central bank plans to lower borrowing costs at its September 17-18 meeting.

"The time has come for policy to adjust," Powell said last Friday, signaling that policymakers will cut the federal funds rate. "Inflation is now much closer to our 2% target," he said, noting that policymakers are now more focused on the health of the job market than earlier this year.

Powell said the central bank aims to avoid the widespread job losses that often occur during policy tightening. "We do not seek or welcome further cooling in labor market conditions," he said.

The Conference Board said the share of consumers expecting lower borrowing costs rose to 31.5%, the highest since April 2020, in response to growing signals from Fed officials about future monetary easing.

Meanwhile, consumers' average expectations for inflation over the next 12 months fell to 4.9%, the lowest since March 2020, which the group said is "consistent with the overall slowdown in inflation and falling prices for some goods."

When assessing the business environment, 20.8% of consumers rated it as "good," up from 19.2% in July, the Conference Board said.

"The proportion of consumers anticipating a recession remained stable, well below the peak seen in 2023," Peterson said.

The Atlanta Fed reported Monday that gross domestic product is likely growing at a 2% annualized rate in the third quarter.