Consumer confidence climbed further in August as continued strengthening in the labor market bolstered views of current economic conditions. Inflation expectations edged down and remain a challenge for the Fed.
A Better Present and a Better Future
Consumer confidence remained buoyant in August according to the latest survey by the Conference Board. The Conference Board’s index rose 2.9 points to 122.9, beating the market’s expectations for a reading of 120.7. At this level, consumer confidence is just a shade below the 16-year high set in March and well above last year’s average of 99.8.
Pushing the index higher this month were improved assessments of both current conditions and expectations about the future. The expectations component rose one point to 104.0, but remains below the cycle high set in March. While the expectations component surged in the wake of last year’s election, assessments of the present situation have been improving more gradually. In August, however, the present situation index rose nearly 6 points, putting it at the highest level since 2001.
The Consumer Confidence Index puts more emphasis on labor market conditions than other sentiment measures, which is a major reason why the index remains at a high level. Views of the labor market continued to improve in August as hiring has remained strong and job openings are at record highs. The share of respondents reporting jobs as "plentiful" rose to 35.4 percent in August, while the share believing jobs were "hard to get" fell to 17.3 percent. The difference between these two series—the labor differential—jumped to 18.1 percentage points and suggests further tightening in the labor market. Views of business conditions also improved in August, with more respondents rating business conditions as "good."
The favorable view of labor market conditions has lent support to consumers’ views of future income. The share of consumers expecting to see incomes increase over the next six months continued to move up, while the share expecting a decrease shrunk further.
Inflation expectations headed down a tick over the month and are back at the lows of this cycle. While expectations for higher income alongside weaker inflation imply consumers expect to see real income gains, depressed views of future inflation remain a hurdle for the Fed.
Harvey Headaches to Come
The cutoff date for the survey was August 16, ahead of the havoc wrought by Hurricane Harvey and continued rain fall along the Gulf Coast. As a result, we would not be surprised to see the index fall in September. In the month following Hurricane Katrina, the index tumbled 18 points. That said, the hit to confidence was relatively short lived. Within five months, the consumer confidence index rebounded to its pre-Katrina level. While it is still too early to tell the extent of the damage done by Hurricane Harvey, we expect continued strength in the labor market to help overcome the near term setbacks related to the storm.
