Consumer confidence staged a dramatic rebound in August, indicating that households appear to be shaking off the summertime blues that dragged confidence down for three straight months.
The better-than-expected figures released Tuesday will be welcome news to retailers but they may push the Federal Reserve to take a more hawkish stance as the Conference Board’s survey indicates more confidence in the labor market and a recovery in spending plans.
The Conference Board said its Consumer Confidence Index rose to 103.2 in August, up from July’s revised 95.3 reading (revised down from the preliminary 95.7). Economists had forecast 97.4.
Consumers grew more optimistic about overall economic conditions, with 19.2 percent describing business conditions as “good” in August, up from 16.3 percent. Still, this barometer remains underwater, with 23.2 percent describing business conditions as “bad.” A month ago, 24.2 percent said conditions were bad.
Consumers’ assessment of the labor market was mixed, despite a number of reports showing unexpectedly strong hiring, soaring job vacancies, a near-record high job ratio of vacancies to unemployed people, and falling initial jobless claims. Forty-eight percent of consumers said jobs were plentiful, down from 49.2 percent. The share saying jobs are hard to get fell one percentage point to 11.4 percent.
The outlook for jobs got more positive. The share of consumers saying they expect more jobs to be available six months from now jumped to 17.4 percent from 15.1 percent. The share anticipating fewer jobs fell to 19.3 percent, down from 21.1 percent.
This improvement, along with the unexpectedly high job openings figure for July that was released Tuesday, runs contrary to the Fed’s attempt to cool down the labor market. If the Fed is successful with its tightening policy, there will be fewer available jobs six months from now. If there are more, it will likely mean that inflation remains much higher than currently expected.
Similarly, consumers appear ready to keep spending, which could also push prices higher at a faster rate.
“Purchasing intentions increased after a July pullback, and vacation intentions reached an 8-month high,” said Lynn Franco, senior director of economic indicators at the Conference Board. “Looking ahead, August’s improvement in confidence may help support spending, but inflation and additional rate hikes still pose risks to economic growth in the short term.”
Income expectations have flipped from net negative to net positive, also a worrying sign about wage-driven inflation. In August, 15.8 percent of consumers said they expect their incomes to increase, up from 15.3 percent. The share anticipating lower income fell to 14.5 percent from 15.5 percent.
The Present Situations index, based on views of current business and labor market conditions, rose to 145.4 from 139.7 in July. The Expectations Index—based on short-term outlooks for income, business, and labor market conditions—jumped to 75.1 from 65.6.
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