The Conference Board’s measure of consumer confidence increased in unexpectedly dramatic fashion in September, soaring to 101.8 from an upwardly revised 86.3 in the preceding month. That result easily beat expectations for a much more muted rise to 89.8 and marked the index’s best reading since the COVID-19 pandemic broadsided the U.S. economy in March.
The improvement was broad based encompassing all regions of the country and extending to both consumer assessments of the current state of the economy and the outlook for the coming months. Despite that sizable gain, the index remains well below its pre-pandemic range of the last several years.
Continued improvement in labor market conditions has been a key support for the improving mood, as employers have added to payrolls at a brisk pace in recent months, and the unemployment rate has declined rapidly to 8.4% from its April peak of 14.7%. Job openings have also risen, suggesting that trend should continue.
The story appears to extend beyond an improving outlook for businesses, as consumers were also more upbeat about their personal financial prospects. A combination of better job conditions, solid housing demand lifting prices, and a six-month surge in equity markets have helped to stabilize household balance sheets and ease concerns over stressed family budgets.
Although the improvement was geographically broad-based, the results were differentiated by income level. Low-income households, which haven’t benefited to the same degree by the rebound in asset prices, remain less upbeat about overall conditions and their personal financial outlook.
The story told by consumer confidence is consistent with other economic data — one in which the economic recovery continues, but with still much work to be done to address the negative impact of a harsh recession. Consumers are clearly more upbeat, but still more cautious than they had been before April.
Looking forward, the most obvious risk is for a continued surge in cases and the potential to return to lockdowns or other restrictions as the country heads into traditional flu season. In the absence of a widely available vaccine or effective treatments, that risk will give many consumers reason for caution. Even so, the improvement in sentiment bodes well for consumer spending, particularly important to retailers as the holiday shopping season is rapidly approaching.
Ultimately, the surprisingly robust improvement in the collective consumer mood is an uplifting development for an economy that is heavily dependent upon consumer spending for growth. Economic conditions and confidence are still showing the scars of a recession that was unprecedented in terms of its magnitude and speed, but those scars are also healing faster than many expected.
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