The overall mood of U.S. consumers improved markedly in June, as economic data suggested that the economy accelerated after a soft opening to the year.
The Conference Board Consumer Confidence Index rose to 98.0 in June, up from a revised 92.4 reading for the prior month and easily exceeding expectations for a modest uptick. Improving expectations for the future and an improving assessment of current conditions were both apparent among those surveyed.
With the upward move, consumer confidence is above its long-term average of 92.6, improving markedly after being relatively range-bound over the past several months.
The positive report on consumer attitudes built on an upward revision to Q1 GDP that raised the rate of growth to 1.1% from an initial estimate of 0.5% in the report released earlier today. While the economy stumbled in the first few months of the year, it now appears that it did not soften as much as initially believed. More recent data continues to point to a pickup in activity in the second quarter, with growth expected to return to the 2.0 – 2.5% trend rate of recent years.
While consumers have been fairly resilient to market volatility and slower growth thus far in 2016, the recent referendum decision by British voters to leave the EU shocked the capital markets and sent a ripple of worry around the globe. Most expect that the near-term effect on the UK economy will be negative, but the impact on the U.S. economy should be negligible.
Although household spending tightened to begin the year, as confidence slipped amid capital market volatility and flagging economic growth, combined retail sales growth in April and May marked the strongest two-month gain in over two years. Retail sales were up 0.5% in May, supported by strong sales at gas stations, although it remains the weakest retail sector over the past year.
The bottom line is that the outlook for consumers looks good, supported by a growing economy, generally solid labor market conditions, an improving wage outlook, manageable debt levels, and moderate inflation. Near-term market volatility may give households reason for pause, but consumer spending should remain a key support for the economy in the coming quarters.