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Consumer confidence edges to its highest level since February 2020

July 27, 2021 Blog 1 min read
Jim Baird Wealth Management
Despite rising inflation, evidence that economic growth may have peaked, and the emerging risk presented by the COVID-19 Delta variant, consumers remain upbeat in their assessment of the economy.

Consumer Confidence Index - History ChartThe Conference Board’s measure of consumer confidence edged unexpectedly higher in July. The increase to 129.1 was modest, but easily exceeded expectations for a moderate decline – a development that was particularly meaningful given recent developments both economically and in the fight against COVID-19.

The modest uptick lifted the index to its highest level since February 2020, shortly before the U.S. shut down virtually overnight to address the rising health threat presented COVID-19.

Confidence among American consumers has risen over the past several months as the economy and the labor market bounced back, fueled by massive fiscal stimulus and pent-up consumer demand, emboldened by vaccine distribution, and made possible by the lifting of many restrictions across the country.

Underlying the modest increase in the index were some slightly more nuanced views on the state of the economy. A majority of respondents believe that jobs are plentiful – a fact that is supported by record job openings posted in recent months. The competition for workers remains fierce, despite a large pool of unemployed individuals.

Expectations for the economy in the coming months remained largely upbeat, with those respondents expecting better business conditions in six months outweighing those with a more pessimistic outlook by three to one.

Inflation expectations have risen modestly, but not alarmingly so. Although rising prices have garnered significant attention in recent months, consumers still appear to be largely buying into the argument that the surge is temporary. However, if price increases don’t show evidence of rolling over in the coming months, that could change.

Despite rising prices, consumer spending should remain robust in the months ahead given pent-up demand, ample savings, and the continued employment growth. Hiring could be poised to accelerate in the coming months as enhanced employment benefits expire, eliminating a significant disincentive for many to return to work. That could also help to alleviate some of the price pressure for various products and services where the lack of workers is holding back production and the ability to meet consumer demand.

The bottom line? Despite growing questions related to inflation, growth, and the next phase of the COVID-19 pandemic, consumers appear content to look through those risks and remain optimistic about the direction of the economy. Whether or not that optimism can be sustained will hinge on how each of those catalysts evolves in the coming months.

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Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.

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