U.S. Consumer Confidence Unexpectedly Rises in August

U.S. consumer confidence unexpectedly rose to 53.5 in August, the Conference Board said, as Americans became somewhat more positive about the short-term outlook for the economy.

A Bloomberg survey had expected the index to rise to 51.0 in August from 50.4 in July. It hit a record low of 25.3 in April 2009.

In August, two of the index's three components rose, with consumers' expectations for both the job market and the future economic conditions showing improvement.

Consumers expecting more jobs in the months ahead rose in August to 14.6% from 14.2% in July, while those anticipating fewer jobs decreased to 19.4% from 20.9%.

In addition, consumers expecting an improvement in business conditions over the next six months increased to 17% in August from 15.8% in July, while those expecting business conditions to worsen decreased to 13.4% from 15.4%.

However, consumers' evaluation of current conditions continued to weaken in August. Those claiming conditions are "good" fell to 8.7% from 8.8% in July, while those claiming business conditions are "bad" declined to 41.9% from 43.3%.

Separately, the Chicago Purchasing Managers' Index fell to 56.7 in August from 62.3 in July, Reuters reported Tuesday. Readings over 50 indicate an expansion; below 50, a contraction. A Bloomberg Survey had expected the index to fall to 56.0 in August.

Americans' Stance Remains Guarded

Returning to the August consumer confidence data, Lynn Franco, director of The Conference Board's Consumer Research Center, said consumer confidence did edge-up in August, but Americans' overall stance remains guarded, and roughly on-par with confidence levels from a year ago.

"Consumer confidence posted a modest gain in August, the result of an improvement in consumers' short-term outlook. Consumers' assessment of current conditions, however, was less favorable as employment concerns continue to weigh heavily on consumers' attitudes," Franco said, in a statement. "Expectations about future business and labor market conditions have brightened somewhat, but overall, consumers remain apprehensive about the future. All in all, consumers are about as confident today as they were a year ago."

Economists, business executives, and investors alike monitor the Consumer Confidence Index because, historically, rises in consumer confidence are directly correlated with increases in consumer spending. Moreover, consumer spending has accounted for about 65-70% of U.S. GDP. Hence, if confidence rises, and a trend forms, that most likely means good things are ahead for corporate revenue and earnings; falling confidence, the opposite.

Notch One For The Bulls

August's consumer confidence report provided the stock market's bulls with a welcome, positive data point, after a difficult month that saw existing and new home sales plunge, jobless claims rise, the manufacturing sector slow, and second quarter U.S. GDP growth revised downward to a 1.6% rate from the previously-estimated 2.4%.

The bulls hope the consumer confidence rise signals the start of an uptrend in consumer spending, business investment, and job growth -- increases that would be bullish for the U.S. stock market.

Conversely, the stock market's bears argue that inadequate job growth, sluggish home sales, and the latest danger signs in the manufacturing sector point to an economy that will continue to slow in the fall -- an inadequate economic performance that would be bearish for stock prices.