Consumer confidence surveys are important private sector surveys even though economists view them as lagging indicators. Their importance lies in the confirmation of spending patterns and as consumption in developed countries may amount to 60%-70% of GDP, knowing how it behaving is important for financial markets’ forecasts for GDP growth rates, which in turn flow into demand for credit and inflation rates.
The latest release from the US Conference Board’s August survey is especially important in light of the US Fed’s stated “data dependent” approach to normalising US official interest rates. The August reading came in at 101.1, up from July’s revised reading of 96.7 and considerably higher than the market forecast of 97.0.
Since the GFC survey results have not been consistently over 100 and the months in which the index has been above 100 have been sporadic, the most recent one in August 2015. Lynn Franco, Director of Economic Indicators at the Conference Board noted the figures suggested a rise in consumer spending in coming months could be expected. “Consumers’ assessment of both current business and labour market conditions was considerably more favourable than last month. Short-term expectations regarding business and employment conditions, as well as personal income prospects, also improved…”
Despite the higher-than-expected figure, the US bond market’s reaction was mixed. 2 year yields fell 2bps and 30 year yields rose 1bp on the day, although how much the moves were caused by the report and how much was caused by the US Fed vice chair’s comment regarding the US economy at near full employment is debatable.