In the span of just one month, the picture regarding Consumer Confidence has changed immensely. You may recall that in last month’s report, the headline index came in at a 52-week low of 121.5 in what was just the fourth 52-week low for the headline reading since the expansion began. Well, this month the picture changed considerably. Not only was last month’s headline reading revised higher (to 124.3), but the headline reading for July came in MUCH stronger than expected. While economists were forecasting a reading for July of 125.0, the actual reading came in at 135.7, or just slightly more than two points above the cycle high of 137.9 from October 2018. That beat in the actual reading relative to expectations was also the 9th strongest reading relative to expectations in more than 20 years! Our Economic Indicator Database allows users to look at historical economic releases and track how the market reacted to each report. Start a two-week free trial to Bespoke Institutional to try it out now.
Not only was this month’s headline reading strong, but strength was also divided between Present Conditions and Expectations. What was especially encouraging was the fact that the expectations component saw a much larger gain than current conditions, and that helped to narrow the extremely wide spread between the two.
As we have discussed frequently in the past, when the spread between Present Conditions and Expectations gets as wide as it is now and starts to narrow again, it usually means a recession isn’t far behind. One caveat here, though, is that in the past the narrowing of the spread has been due to the Present Conditions index falling faster than the Expectations index. In the current period, the narrowing is occurring due to an increase in the Expectations Index.
So why are consumers suddenly more confident in expectations? One fact behind the increase is that the jobs market has been strong. Jobless claims remain near cycle lows and as shown in the chart below, the Jobs Plentiful Index in the Consumer Confidence report rebounded to 46.2% this month. While that is not quite a new high for the cycle (46.8), it has rebounded nicely and erased nearly all of its losses from the November 2018 high of 46.8 to the March 2019 low of 42.5. As long as consumers feel that jobs are easy to get, confidence should remain high.