U.S. Consumer Confidence Increased More Than Expected In July

by Ike Obudulu Posted on July 31st, 2018

The Conference Board Consumer Confidence Index increased marginally in July, following a modest decline in June. The Index now stands at 127.4 (1985=100), up from 127.1 in June. The Present Situation Index improved from 161.7 to 165.9, while the Expectations Index declined from 104.0 last month to 101.7 this month.

Economists consensus expectations was for the Consumer Confidence Index to be at 126.5 in July.

The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen, a leading global provider of information and analytics around what consumers buy and watch. The cutoff date for the preliminary results was July 19.

“Consumer confidence gained marginal ground in July, after a modest decline in June,” said Lynn Franco, Director of Economic Indicators at The Conference Board. “Consumers’ assessment of present-day conditions improved, suggesting that economic growth is still strong. However, while expectations continue to reflect optimism in the short-term economic outlook, back-to-back declines suggest consumers do not foresee growth accelerating.”

Consumers’ assessment of current conditions improved further in July. Those stating business conditions are “good” increased from 37.2 percent to 38.0 percent, while those saying business conditions are “bad” declined from 11.5 percent to 10.1 percent. Consumers’ assessment of the labor market was also more favorable. Those claiming jobs are “plentiful” increased from 40.4 percent to 43.1 percent, while those claiming jobs are “hard to get” was virtually unchanged at 15.0 percent.

Consumers’ optimism about the short-term outlook waned again in July. The percentage of consumers anticipating business conditions will improve over the next six months increased from 20.7 percent to 23.1 percent, but those expecting business conditions will worsen also rose, from 9.3 percent to 10.8 percent.

Consumers’ outlook for the labor market was also mixed. The proportion expecting more jobs in the months ahead increased from 20.0 percent to 22.5 percent, but those anticipating fewer jobs also increased, from 13.1 percent to 15.7 percent. Regarding their short-term income prospects, the percentage of consumers expecting an improvement rose from 19.7 percent to 20.8 percent, but the proportion expecting a decrease also rose, from 7.9 percent to 9.2 percent.

Why Markets Care About Conference Board Consumer Confidence Index (CCI)

The Conference Board (CB) publishes the Consumer Confidence Index (CCI), at 10 a.m. ET on the last Tuesday of every month.

It measures Level of a composite index based on surveyed household.

The usual effect is that  ‘Actual’ greater than ‘Forecast’ is good for the dollar and vice versa.

The Consumer Confidence Index is derived   a survey of about 5,000 households which asks respondents to rate the relative level of current and future economic conditions including labor availability, business conditions, and overall economic situation. The Consumer Confidence Survey reflects prevailing business conditions and likely developments for the months ahead. This monthly report details consumer attitudes and buying intentions, with data available by age, income, and region.

The Conference Board Consumer Confidence Index (CCI) is a barometer of the health of the U.S. economy from the perspective of the consumer. The index is based on consumers’ perceptions of current business and employment conditions, as well as their expectations for six months hence regarding business conditions, employment, and income. The Consumer Confidence Index and its related series are among the earliest sets of economic indicators available each month and are closely watched as leading indicators for the U.S. economy.

Financial confidence is a leading indicator of consumer spending, which accounts for a majority of overall economic activity

Other Economy News – U.S. Employment Cost’s Rose in Q2

Compensation for American workers grew at a steady clip in the second quarter, posting the largest year-over-year increase in nearly a decade.

The employment-cost index, a measure of wages and benefits for civilian workers, rose a seasonally adjusted 0.6% in April through June, the Labor Department said Tuesday.

The second-quarter growth lagged the 0.8% growth clocked in the first quarter, and fell short of expectations. Economists surveyed by The Wall Street Journal expected the index rose 0.7% in the second quarter.

Still, the index for overall compensation and the index for wages and salaries both increased 2.8% over the year to June, which marked the strongest gains in both measures since the third quarter of 2008. That signals historically low unemployment is putting upward pressure on companies’ labor costs.

Wages and salaries, which account for about 70% of total compensation, rose 0.5% from the prior quarter. Benefit costs — which include health coverage, retirement benefits and paid leave — advanced a stronger 0.9%.

Private-industry workers saw total compensation in the second quarter rise 0.6% from the prior quarter and increase 2.9% from a year earlier. The year-over-year gain was the strongest since the second quarter of 2008.

Wages and salaries of private-sector workers, rose 2.9% in June from a year earlier, matching the pace seen in the prior quarter.

Wage growth, stubbornly sluggish for years following the 2007-09 recession, has picked up by some metrics as the labor market has tightened and employers have raised pay to compete for workers.

High demand for freight and a tight labor market means truckload carrier USA Truck Inc. will raise pay for drivers in the third quarter, Chief Executive James Reed said during a July 27 earnings call.

The industry-wide driver shortage, which Mr. Reed described as the biggest challenge facing the trucking business, “is fueled by a strong economy with near full employment levels, increased transportation regulations and fewer new drivers entering the industry,” he said.

A separate report from the Commerce Department Tuesday suggested inflation pressures are gradually building in the broader economy.

The price index for personal consumption expenditures, the Federal Reserve’s preferred inflation measure, was up 2.2% in June from a year earlier and rose 0.1% from May.

Excluding volatile food and energy costs, prices rose 0.1% in June, in line with economists’ expectations. Core inflation was up 1.9% in June from a year earlier.

Other Economy News – U.S. Household Income, Spending Rose at Solid Rate in June

U.S. households incomes and spending both rose at a solid rate in June, indicating consumers have the capacity to drive gains in economic output.

Personal-consumption expenditures, a measure of household spending on everything from hospital stays to groceries, increased a seasonally adjusted 0.4% in June from the prior month, the Commerce Department said Tuesday. Spending was also revised up in May, to a 0.5% gain from 0.2%, and April, to a 0.6% increase from 0.5%.

Personal income, reflecting Americans’ pretax earnings from salaries and other sources including investments, rose 0.4% in June from May.

Economists surveyed by The Wall Street Journal had forecast a 0.5% rise for spending and a 0.3% gain in income.

Solid consumer spending this spring helped propel overall economic output to grow at a 4.1% annual rate in the second quarter, the Commerce Department said last week. It was the best three-month increase since 2014. The June spending and income data released Tuesday was previously incorporated into last week’s report on gross domestic product.

Consumer spending accounts for about two-thirds of total economic output in the U.S.

In Tuesday’s report, the Commerce Department said outlays for goods was flat, but spending on services jumped 0.6%.

Spending gains didn’t effect Americans willingness to save. The saving rate in June was unchanged from May at 6.8%. Savings-rate data was significantly revised last week. The new data shows Americans have been saving between 6% and 8% of their monthly income in recent years.

Some of the June spending gains reflect cost increases. When adjusted for inflation, spending was up 0.3% from the prior month.

Americans’ incomes have been growing this year. But gains look slightly more modest when factoring in rising prices. Inflation-adjusted, after tax income increased 0.3% in June from May.

Tuesday’s report showed the price index for personal-consumption expenditures, the Federal Reserve’s preferred inflation measure, rose 0.1% in June from a month earlier and was up 2.2% from a year earlier. The annual gain matched May’s increase.

Excluding volatile food and energy costs, prices also rose 0.1% in June from May, and 1.9% from a year earlier.

The Fed targets 2% year-over-year inflation and has been raising short-term interest rates to prevent the economy from overheating. For most of the past six years, annual inflation was running below the Fed’s target, but the headline price gauge has matched or exceeded 2% for four straight months.

U.S. central bankers start their two-day policy-making meeting Tuesday. Last month, officials voted to increase their benchmark federal-funds rate by a quarter percentage point to a range between 1.75% and 2.00%. They’re not expected to raise rates this week, but officials have penciled in two further quarter-point rate increases for 2018.

Other Economy News – U.S. S&P/CS Composite-20 House Price Index (HPI) y/y

Home price gains held steady in May, as a lack of inventory of homes for sale helps prevent a meaningful slowdown in price growth despite rising mortgage rates and growing affordability challenges.

The S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas across the nation, rose 6.4% in May, identical to the year-over-year increase reported in April.

The 10-city index gained 6.1% over the year, down from 6.4% the prior month. The 20-city index gained 6.5%, down from 6.7% the previous month.

The annual increase in the Case-Shiller national index has topped 5% every month since August 2016. Price gains are at this point one of very few strong spots in the housing market, as a lack of inventory is helping to give sellers continued pricing power despite slowing sales.

Despite a strong economy and demographic tailwinds from millennials hitting their early to mid-30s, the housing market has delivered a lackluster performance this spring.

David Blitzer, managing director at S&P Dow Jones Indices, said rising prices are contributing to a slowdown in virtually every other housing-market indicator — from existing home sales to housing starts to pending home sales, which have lagged behind year-ago activity for six straight months, the National Association of Realtors reported on Monday.

“The combination of rising home prices and rising mortgage rates are beginning to affect the housing market,” Mr. Blitzer said.

The biggest price gains remained concentrated in the West. Seattle saw a 13.6% annual gain in prices in May compared with a year earlier, while Las Vegas prices increased 12.6% and San Francisco saw a 10.9% increase.

Rising mortgage rates have contributed to a slowdown in the pace of home sales in recent months and may also be putting slight downward pressure on prices. The rate for a 30-year mortgage was 4.54% last week, up from 3.99% at the end of last year, according to mortgage company Freddie Mac.

Existing home sales have now declined on an annual basis in five of the first six months this year, as rising prices and mortgage rates and a lack of inventory have made it more difficult for would-be buyers to find and afford homes.

Month-over-month, the U.S. Case-Shiller home-price index rose 1.1% in May before seasonal adjustment, while the 10-city and the 20-city index rose 0.5% and 0.7% respectively from April to May.

After seasonal adjustment, the national index rose 0.4% month-over-month. The 10-city index rose 0.1% and the 20-city index rose 0.2%. Nineteen out of 20 cities reported increases before seasonal adjustment.

Change in the selling price of single-family homes in 20 metropolitan areas.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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