The Conference Board’s monthly Consumer Confidence Index hit 117 in July, rising from 110.1 the month before. The index increased for the third consecutive month, bounding even higher after a sharp upswing in June. The rating marked its highest level since July 2021.
Economists expected the index would climb to 111.8, according to consensus estimates on Refinitiv.
Based on consumers’ short-term outlook for income, business and labor market conditions, the Expectations Index improved to 88.3 from 80.0 in June. Expectations climbed above 80, historically signaling a recession within the following year. Despite rising interest rates, consumers are more upbeat, likely reflecting lower inflation and a tight labor market. Although consumers are less convinced of a recession, one is expected before the year’s end.
“Consumer confidence rose in July 2023 to its highest level since July 2021, reflecting pops in both current conditions and expectations,” said Dana Peterson, chief economist at The Conference Board. “Headline confidence appears to have broken out of the sideways trend that prevailed for much of the last year. Greater confidence was evident across all age groups, and among both consumers earning incomes less than $50,000 and those making more than $100,000.”
Peterson added, “Assessments of the present situation rose in July on brighter views of employment conditions, where the spread between consumers saying jobs are ‘plentiful’ versus ‘hard to get’ widened further. This likely reflects upbeat feelings about a labor market that continues to outperform. When asked about current family financial conditions (a measure not included in calculating the Present Situation Index), the share of respondents citing a ‘good’ situation rose, and those citing ‘bad’ conditions fell, signaling still-healthy family finances. This might reflect softening inflation and continued income support from employment.
“Expectations for the next six months improved materially, reflecting greater confidence about future business conditions and job availability. This likely reveals consumers’ belief that labor market conditions will remain favorable. Expectations for future incomes ticked down slightly, a potential reflection of slower wage growth compared to a year ago. The measure of expected family financial situation, six months hence (not included in the Expectations Index) also softened somewhat in July—despite a further decline in the 12-month forward inflation expectations gauge.
“The proportion of consumers saying recession is ‘somewhat’ or ‘very likely’ to occur ticked up in July, contrary to the Expectations Index spiking this month above the threshold of 80. Still, recession expectations remained below their recent peak, suggesting fears of a recession have eased relative to earlier this year.
“In our periodic survey of services, consumers continued to report intentions to spend less on discretionary services—including travel, recreation, and gambling—going forward. By contrast, they anticipate spending more in the months ahead on necessary services like health care, as well as cheaper services like streaming from home.”
Consumers’ assessment of current business conditions was slightly less optimistic in July, with 21.9 percent responding that business conditions were “good,” down from 23.4 percent last month, and 15.2 percent said business conditions were “bad,” essentially unchanged from 15.3 percent.
However, consumers’ appraisal of the labor market improved, with 46.9 percent of consumers saying jobs were “plentiful,” up from 45.4 percent., and 9.7 percent of consumers responding that jobs were “hard to get,” lower than the 12.6 percent in June.
Consumers were more optimistic about the short-term business conditions outlook in July, with 17.1 percent expecting business conditions to improve, up from 14.6 percent. Meanwhile, 14.0 percent expect business conditions to worsen, down from 17.7 percent in June.
Consumers’ assessment of the short-term labor market outlook was more favorable with 16.4 percent of consumers expecting more jobs to be available, up from 15.4 percent. Moreover, 14.8 percent anticipate fewer jobs, down from 16.7 percent.
Consumers’ short-term income prospects were tempered in July. While 16.3 percent of consumers expect their incomes to increase, down from 18.6 percent last month, only 9.7 percent expect their income would decrease, down from 11.8 percent in June.
Consumers’ assessment of their family’s financial situation signaled healthy family finances in July, with 31.6 percent of consumers saying their family financial situation is “good,” up from 28.8 percent in June. However, 17.6 percent said their current family finances were “bad,” down from 18.6 percent.
Consumers’ assessment of their family’s expected financial situation, six months hence, softened in July, with 31.1 percent expecting their family finances to be “better,” down from 31.9 percent in June, while 13.6 percent expect their family finances to be “worse,” up from 13.2 percent.
Consumers’ Perceived Likelihood of a U.S. recession over the next 12 months increased in July but remained below the peak earlier in the year, with 70.6 percent of consumers saying a recession is “somewhat” or “very likely,” up from 69.9 percent in June.
Based on an online sample, the Conference Board’s monthly Consumer Confidence Index is conducted for The Conference Board by Toluna. The cutoff date for the preliminary results was July 19.
