June’s Consumer Confidence Research Notes

by Jim Baird on June 25, 2013

CaptureConsumer confidence soars unexpectedly in June

Consumer confidence defied expectations for a modest setback in June, with the Conference Board’s Consumer Confidence Index soaring to 81.4.  Expectations were for the index to decline from May’s preliminary reading of 76.2.  While that didn’t occur, the May index was revised lower to 74.3 in today’s report.

Confidence had gradually seesawed higher earlier this year, but has accelerated sharply in the past three months. The improvement in confidence is a clear positive, particularly given the hit to household budgets earlier this year caused by tax hikes and stubbornly slow growth in personal income.  Generally, consumers are feeling more optimistic about not only current conditions, but also the outlook for the economy moving forward, which should bode well for spending in the months ahead.

Among the factors undoubtedly helping to lift the mood of consumers is the ongoing healing in the housing market.  New home sales rose by a better-than-expected 2.1% in May.  Coupled with low inventory levels, improving sales activity suggests the demand for housing remains a bright spot supporting the expansion.  Single family home prices also continue to advance briskly, as indicated by a better-than-expected 12.1% increase in the Case-Schiller 20-City Composite Index earlier today, a result that also exceeded expectations.

As a whole, the upward trend in confidence not only reflects the gradual improvement in economic conditions, but is also a critical ingredient to the creation of a much-sought-after virtuous cycle that could help to sustain growth. 

As the largest contributor to the U.S. economy, further momentum in consumer spending will be crucial to driving the economy forward, particularly with government spending cuts weighing on near-term growth. 

Although the overall pace of growth is still generally believed to be slower than is needed for the economy to achieve “escape velocity”, the overall mood of the consumer sector and continued improvement in housing and job creation bode well for the near-term outlook.

Previous post:

Next post: