Consumers remained in an upbeat mood in July, as the Conference Board Consumer Confidence Index was virtually unchanged from the prior month at 97.3, dipping just 0.1 from the June reading of 97.4. That result easily exceeded consensus expectations for larger decline.
Consumers were modestly more optimistic about their current situation, as the Present Situation index came in at 118.3, well above the headline result. On the other hand, they remain more skeptical about the road ahead, which has been the case for some time; the Expectations Index dipped modestly to 83.3 for the month.
The fact that the index was virtually unchanged reaffirms a degree of resilience on the part of consumers. The potentially negative impact of the Brexit vote and the resulting volatility in global equity markets was likely blunted by the subsequent bounce back, mitigating any negative wealth effect from the immediate selloff.
Strong job creation in June coupled with the extended period of low jobless claims continue to point to solid labor market conditions, further boosting the collective mood of households.
Retail sales were up 0.6% in June, making combined retail sales growth for the second quarter the strongest three-month gain since last May. As long as consumers remain relatively upbeat, retail sales and broader consumption measures should benefit.
While confidence can have a meaningful impact on short-term consumer spending trends, in the long run actual spending activity is tied more closely to income growth. Average hourly earnings increased by 2.4% year-over-year in June, and when coupled with firming inflation data, could be poised for continued growth throughout the remainder of the year, supporting consumer spending and overall economic growth.
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.