In an encouraging economic development, consumer confidence has witnessed a significant uptick this month, while the outlook for annual inflation has plummeted to its lowest level in almost four and a half years, as reported by the Conference Board on Tuesday. The consumer confidence index surged to 103.3 in August, marking an increase from an upwardly revised 101.9 in July.
Analysts on Bloomberg had anticipated a more modest rise from July's unrevised figures, projecting a level of around 100.8. Dana Peterson, Chief Economist at the Conference Board, commented on the findings: "Consumers continued to express mixed feelings in August. While there is a more optimistic stance regarding current and future business conditions compared to July, there are rising concerns about the labor market." The present situation index, reflecting current economic conditions, saw an increase, climbing to 134.4 this month from 133.1 in July.
In parallel, the expectations index also rose, moving from 81.1 to 82.5, which represents the second consecutive month above the critical 80-level threshold. A reading that falls below 80 typically indicates potential economic recession, as per the Conference Board's criteria. Despite positive ratings overall regarding the labor market, consumer perspectives appear to be softening.
"Consumers are holding a more pessimistic view about future job prospects, a sentiment likely influenced by a recent uptick in unemployment rates," Peterson elaborated. Interestingly, consumer confidence dynamics reveal contrasting trends based on age. Confidence has dipped among consumers under the age of 35, while those aged 35 and older have experienced a surge in confidence levels.
Notably, young consumers still exhibit the highest confidence when measured on a six-month moving average. Further, those earning less than $25,000 per year expressed declining confidence, which is compounded by an overall sentiment that is "a bit less positive about future income," according to Peterson. On the inflation front, average 12-month inflation expectations have decreased to 4.9% in August, reaching the lowest mark since March 2020.
Despite this reduction, mentions of prices and inflation dominated the survey responses, indicating a persistent concern among consumers regarding the cost of living. Furthermore, the proportion of consumers anticipating lower interest rates over the next year has increased, now sitting at 31.5%, marking the highest level since April 2020.
Current market forecasts suggest a roughly 66% probability that the Federal Reserve will implement a 25 basis points rate cut on September 18, with the remaining probability leaning towards a more drastic 50-basis-point reduction, as indicated by the CME FedWatch tool..