A Strong Uptick in Consumer Confidence

Consumer confidence in the US experienced a noteworthy rise in June, spurred by improvements in anticipated financial situations, a decrease in the perceived likelihood of a recession, and increased optimism about employment and the conditions of employment.

The Conference Board Consumer Confidence Index registered an increase to 109.7 in June, up from 102.5 in May. This increase marks the highest level of consumer confidence since January 2022!

People are feeling good again, and that certainly was reflected in today’s surprising strong home sales data, coming in 12% higher than the prior month.

The Present Situation Index, based on consumers’ assessment of the current state of business and labor market conditions, also rose to 155.3 from 148.9 the previous month. Similarly, The Expectations Index, which reflects consumers’ short-term outlook for income, business, and labor market conditions, saw an upward trend, increasing to 79.3 from 71.5 in May.

Despite the consistent sub-80 levels seen since February 2022 - a level associated with a recession within the year - June's reading showed promise, only just missing the 80 mark and exhibiting a significant increase from last month's figure.

"Greater confidence was most evident among consumers under age 35, and consumers earning incomes over $35,000," said Dana Peterson, Chief Economist at The Conference Board. She noted that despite this upturn, the expectations gauge continued to signal that consumers still anticipate a recession at some point over the next 6 to 12 months.

Nevertheless, consumers showcased positive attitudes towards the present situation in June, with assessments of both business and employment conditions seeing a rise. Furthermore, consumers' expectations for the next six months showed considerable improvement, reflecting greater confidence in future business conditions and job availability.

Despite a minor decrease in income expectations during June, new survey questions revealed a notably brighter outlook for consumers' family finances. Around 30 percent of consumers expect their family's financial situation to improve in the next six months, compared to less than 14 percent expecting it to worsen.

Meanwhile, the percentage of consumers expecting a recession within the next 12 months fell compared to May, providing an additional boost to overall consumer confidence. However, there was a noted slowdown in plans to purchase autos and homes, possibly reflecting the rising costs of financing big-ticket items as the Federal Reserve continues to raise interest rates.

In summary, this boost in consumer confidence reflects an optimistic perspective from consumers on the economy's trajectory. Whether or not this uptick is warranted remains to be seen.

We continue to think that the second half of 2023 is likely to be tougher than the first half due to a slowing global and domestic economy, more difficult earnings comps, stickiness in services inflation, and increasing impacts from rate hikes having a later headwind effect on business and consumer activity.

Monitoring the services sector will be key to determine when this downshift may be occurring.