The Conference Board’s measure of consumer confidence rose sharply in July to 135.7 – a sharp surprise to the upside. Economists had expected the index to edge moderately higher to 125.0 from 121.5 in June. The July reading represented the highest mark for the index this year and the best result since last November.
The resurgence permeated both consumers’ current assessment of economic conditions and their outlook for the months ahead.
A raft of concerns about trade and the economy had emerged in recent months, but consumer spending was quite strong, and grew at an accelerating pace in the second quarter. Macro concerns notwithstanding, the strength of the labor markets and household financial conditions were enough to keep household pocketbooks open.
Strong consumer activity was the major contributor to second-quarter growth clocking in better than expectations. Household spending helped to buoy weak business investment and disruptions in trade, which has taken a toll in the cyclically-sensitive manufacturing sector.
The recent about face by the Fed and a broad expectation that the central bank will cut its benchmark short-term interest rate tomorrow have been well received. Nobody expects that the economy is now headed toward a rip roaring second half of the year, but near-term concerns about further weakening have diminished.
The importance of a strong consumer sector to the broad economy cannot be overstated. A confident consumer is a powerful positive catalyst for the economy. If the current positive outlook and spending momentum persists, it’s quite possible that the expansion can be sustained for some time even in the face of trade uncertainty and weakness outside the U.S. At the same time, the sharp swing in the index in just a month illustrates how quickly the mood of the consumer can shift. There are still risks and unresolved questions that could reemerge in the months ahead. For now though, the outlook has improved.
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