In July 2023, consumer confidence experienced a notable increase, primarily fueled by stronger expectations, while the annual inflation forecast remained unchanged, according to a report by The Conference Board released on Tuesday. The consumer confidence index saw an uptick, rising to 100.3 from a downwardly revised 97.8 in June.
This figure marks a two-month high and surpassed market expectations, with a consensus forecast of 99.7 reported on Bloomberg. Dana Peterson, Chief Economist at The Conference Board, remarked, "Confidence increased in July, but not enough to break free of the narrow range that has prevailed over the past two years." This statement underscores the cautious optimism that consumers are feeling, yet it reflects a persistent uncertainty in the economic landscape.
The rise in consumer confidence was largely driven by an increase in the expectations index, which advanced to 78.2 from 72.8 month-over-month. However, the present situation measure revealed a dip, decreasing to 133.6 in July from 135.3 in June, indicating varied consumer sentiment regarding current economic conditions.
Peterson noted, "Even though consumers remain relatively positive about the labor market, they still express concerns regarding elevated prices, interest rates, and general uncertainty about future economic conditions; factors that may not see improvement until next year." This sentiment illustrates the dichotomy between current optimism in employment and overarching jitters about sustained inflation and economic stability.
The report further highlighted that the index reflecting short-term expectations for income, business conditions, and labor markets remained below the critical 80 threshold, which typically signals a potential recession. Nonetheless, the survey indicated that consumers were "somewhat less pessimistic about the future" compared to the previous month, which may suggest a shift in consumer perceptions as they navigate through these economic challenges.
Regarding inflation, average 12-month inflation expectations held steady at 5.4% this month. This stability comes as consumers continue to feel the pinch from rising prices, particularly in essential categories such as food and groceries. Additionally, there has been a decline in the percentage of consumers anticipating higher interest rates over the next year, dropping for the second consecutive month to 50.3%, the lowest level since February.
In terms of purchasing behavior, plans to buy homes have seen a significant decrease, falling to a 12-year low when considering a six-month moving average. Conversely, intentions to purchase larger household appliances have seen a slight increase, alongside a growing number of consumers intending to buy smartphones or laptops in the upcoming six months.
These trends indicate a cautious approach to significant investments while still engaging with technological advancements. Overall, the findings of this report provide a nuanced understanding of consumer sentiment, as individuals balance optimism about job prospects with concerns about inflation and interest rates..