US CONSUMER CONFIDENCE KEY POINTS:
- U.S. consumer confidence rises to 103.2 in August from a downwardly revised reading of 95.3 in July, topping consensus expectations calling for a rebound to 97.9
- The recovery can be partially attributed to a steep drop in gas prices, but inflation concerns have not disappeared
- U.S. stocks erase early morning gains and dip into negative territory, but the move is likely related to fears about the Fed’s tightening cycle rather than today’s data
After a great deal of pessimism and dour mood earlier this summer, a popular gauge of U.S. consumer attitudes improved this month, as falling gas prices gave Americans a break at the pump, helping to take some of the bite out of multi-decade high inflation, which has been battering household finances since the start of the year.
According to the Conference Board, consumer confidence in August rose to 103.2 from a downwardly revised reading of 95.3 in July, beating expectations for an advance to 97.9 and ending a three-month slump in sentiment. While the recovery is not significant, it is still a step in the right direction and represents a positive sign for future consumption, the main pillar of the U.S. economy.
Delving deeper into today’s numbers, the present situation index, based on the current business and labor market outlook, moved up to 145.4 from 139.7, recording a gain for the first time since March. This rebound points to some stabilization of the growth profile and reduces the likelihood of another GDP contraction in the third quarter.
Elsewhere, the expectations index, which tracks short-term prospects for income, the business environment, and the jobs market climbed to 75.1 from 65.6, but stayed anchored below the key 80 level, suggesting that recession risks have not dissipated completely. Falling gas prices likely contributed to the improvement in this metric, but strong inflationary pressures in other areas of the economy probably prevented a larger uplift.
On balance, the Conference Board’s results are encouraging, but do not change the underlying picture: the U.S. economy is by no means of out the woods yet. That said, stubbornly high consumer prices and rising interest rates will continue to create serious headwinds for household spending and economic activity over the medium term. In this environment, sporadic bouts of heightened volatility could become commonplace, making a meaningful and lasting recovery in risk appetite difficult.
U.S. stocks erased early morning gains and dipped into negative territory after today’s data crossed the wires, but the move is likely related to concerns about the Fed’s tightening cycle following Chairman Powell’s hawkish message at the Jackson Hole Symposium. Investors believe the aggressive normalization roadmap undertaken by the central bank could trigger a major downturn, weighing on corporate earnings.
US CONSUMER CONFIDENCE CHART
Source: Conference Board
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—Written by Diego Colman, Market Strategist for DailyFX