Consumer Confidence Soars and Inflation Expectations Rise, Raising Doubts About More Government Spending

WASHINGTON, DC - JUNE 23: U.S. President Joe Biden looks on as Attorney General Merrick Garland speaks on gun crime prevention measures at the White House on June 23, 2021 in Washington, DC. Biden pledged to aggressively go after illegal gun dealers and to boost federal spending in aid to …
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Consumer confidence rose more than expected in June, even as negotiations for trillions of dollars of additional government spending were stalled by radical leftwing demands for additional social welfare and climate change programs in a bill supposedly focused on infrastructure improvements.

The Conference Board said Tuesday that its index of consumer confidence rose to 127 from 120 in May. Economists had forecast a slight slip to 119.

“The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—rose from 148.7 to 157.7. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—improved to 107.0, up from 100.9 last month,” the Conference Board said.

The stronger-than-expected results cast doubt on the need for additional government spending. With inflation already running high, the pandemic in retreat thanks to vaccinations, and the economy growing at a swift pace, it increasingly looks like the appropriate time to reduce the level of federal economic intervention.

“Consumer confidence increased in June and is currently at its highest level since the onset of the pandemic’s first surge in March 2020,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “Consumers’ assessment of current conditions improved again, suggesting economic growth has strengthened further in Q2.”

Inflation expectations are rising but not yet affecting consumer behavior, Franco said.

“While short-term inflation expectations increased, this had little impact on consumers’ confidence or purchasing intentions. In fact, the proportion of consumers planning to purchase homes, automobiles, and major appliances all rose—a sign that consumer spending will continue to support economic growth in the short-term. Vacation intentions also rose, reflecting a continued increase in spending on services,” Franco said.

Of course, rising purchase plans are consistent with expectations of higher prices. In fact, consumers expecting high inflation may move up plans to make purchases in an effort to avoid paying higher prices later.

Also feeding inflation pressures are rising expectations of higher incomes in the months ahead, with 18.6 percent of consumers saying they expect their incomes to increase, up from 16.2 percent in May. Only 8.5 percent expect their incomes will decrease, down from 9.3 percent.

For the first time since the pandemic, a larger share of consumers now say business conditions are good rather than bad. The survey showed that 24.5 percent of consumers said business conditions are “good”, up from to 19.9 percent in May. Only 19.5 percent of consumers claimed business conditions are “bad”, down from 20.6 percent.

And consumers are getting more confident about the future, with 33.3 percent of consumers expect business conditions will improve, up from 31.0 percent. Just 10.6 percent expect conditions to worsen, down from 14.4 percent.

Views of the labor market also strengthened. For the first time since the pandemic struck, a majority of consumers—54.4 percent—said jobs are “plentiful”, up from 48.5 percent. Only 10.9 percent of consumers claimed jobs are “hard to get”, down from 11.6 percent.

But consumers grew a bit more skeptical that the economy will continue to add jobs, reflecting a record number of job openings in May. In June, 25.7 percent of consumers expect more jobs to be available in the months ahead, down from 27.7 percent. But they aren’t worried about demand for labor shrinking, either. Just 16.0 percent anticipate fewer jobs, down from 17.5 percent.




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