Summary: Conference Board Consumer Confidence Index improves in August; reading above consensus expectations; views of present conditions, short-term outlook both improve; “recession risks continue”, inflation concerns remain elevated.
US consumer confidence clawed its way back to neutral over the five years after the GFC in 2008/2009 and then went from strength to strength until late 2018. Measures of consumer confidence then oscillated within a relatively narrow band at historically high levels until they plunged in early 2020. Subsequent readings then fluctuated around the long-term average until March 2021 when they reached elevated levels. However, a noticeable gap has since opened between the two most-widely followed surveys.
The latest Conference Board survey held during the first three weeks of August indicated US consumer confidence has improved after deteriorating for three months. August’s Consumer Confidence Index registered 103.2 on a preliminary basis, greater than the median consensus figure of 97.4 as well as July’s final figure of 95.3.
Consumers’ views of present conditions and the near future both improved. The Present Situation Index increased from July’s revised figure of 139.7 to 145.4 while the Expectations Index rose from a revised figure of 65.6 to 75.1.
“The Present Situation Index recorded a gain for the first time since March. The Expectations Index likewise improved from July’s nine-year low, but remains below a reading of 80, suggesting recession risks continue,” said Lynn Franco, a senior director at The Conference Board. He noted inflation concerns remained “elevated.”
US Treasury yields finished the day without much change. By the close of business, the 2-year Treasury bond yield had returned to its starting point at 3.43%, the 10-year yield had crept up 1bp to 3.11% while the 30-year yield finished 2bps lower at 3.22%.
In terms of US Fed policy, expectations of higher federal funds rates over the next 12 months firmed. At the close of business, September contracts implied an effective federal funds rate of 2.54%, 21bps higher than the current spot rate while November contracts implied a rate of 3.46%. September 2023 futures contracts implied 3.79%, 146bps above the spot rate.
“As the Fed raises interest rates to rein in inflation, purchasing intentions for cars, homes and major appliances all pulled back further in July,” Franco added. ”Looking ahead, inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months.”
The Consumer Confidence Survey is one of two widely followed monthly US consumer sentiment surveys which produce sentiment indices. The Conference Board’s index is based on perceptions of current business and employment conditions, as well as respondents’ expectations of conditions six months in the future. The other survey, conducted by the University of Michigan, is similar and it is used to produce an Index of Consumer Sentiment. That survey differs in that it does not ask respondents explicitly about their views of the labour market and it also includes some longer-term questions.
