Summer sunshine: U.S. consumer confidence surges in August
It looks like consumers are starting to feel more confident about the U.S. economy's prospects for recovery. Consumer confidence jumped in August, propelled higher by Americans' assessment of the job market.
Consumer confidence rose about 7 points to 54.1 in August, the Conference Board announced Tuesday. A Bloomberg News survey of economists had expected the index to rise to 48.0 in August from a revised 47.4 in July; it totaled 44.8 in June. The index hit a record low of 25.3 in February. (Base year, 1985=100.)
Further, consumers' assessment of current conditions improved slightly in August. Those claiming business conditions are "bad" decreased to 45.6 percent in August from 46.4 percent in July, while those claiming business conditions are "good" dipped slightly to 8.6 percent from 8.9 percent.
Meanwhile, consumers' assessment of the job market was more favorable compared to last month. Those saying jobs are "hard to get" decreased to 45.1 percent in August from 48.5 percent in July, while those claiming jobs are "plentiful" increased to 4.2 percent from 3.7 percent.
In addition, the board said consumers' short-term expectations improved during the past month. Consumers expecting business conditions to improve over the next six months increased to 22.4 percent in August from 18.4 percent in July, while those expecting conditions to worsen decreased to 15.8 percent from 19.0 percent.
Investors should pay attention to the Consumer Confidence Index because, historically, consumer spending has accounted for about 60-65 percent of U.S. GDP. Moreover, rises in consumer confidence are directly correlated to increases in consumer spending. Hence, if confidence rises, and a trend forms, that most likely means good things are ahead for corporate revenue and earnings.
The Consumer Confidence Index is based on a representative sample of 5,000 households.
Economic Analysis: The better-than-expected rise in consumer confidence in August indicates Americans are starting to become more confident that the nation's worst recession in more than a generation is at least bottoming, perhaps with a recovery underway. Some improvement was also noted in consumer attitudes toward the job market. Still, investors should not read too much bullishness into the August data: the recession has triggered more than 6.7 million job lay-offs and driven unemployment to near 10 percent, with those two factors depressing wage gains. Until Americans see tangible signs of job gains, with rising, real incomes, consumer confidence is not likely to rise very much.
That said, the August data is a step in the right direction, and U.S. stock markets should respond favorably to the improvement.