Consumer Confidence Rises Sharply

Let’s not get excited, but this morning’s Conference Board report on consumer confidence is quite surprising. The index jumped from a revised 61.3 in August to 70.3 in September, beating expectations and, perhaps, altering the outlook for growth. This is the highest reading for seven months and suggests that the summer’s downswing is well past.

The detailed figures reveal a sharp and understandable split between what people think of the present and what they are expecting. The current conditions still draw a skeptical response – only half of respondents think much of circumstances – but even within that part of the report attitudes are brightening. In particular the feelings expressed about employment are lifting, albeit very slowly.

Questions about the future elicit a much different and much more optimistic response. Fully 80% of respondents expect the situation to improve over the next few months, especially in the labor market, and they back this rising optimism with expressed intentions to spend. For instance, the number of people saying they will buy a major appliance or a new car both rose during September, continuing a trend that set in around mid-summer. Were these intentions to become actual activity then the added consumption would boost GDP from its current rather tepid levels back towards a more acceptable trajectory with the potential knock-on effect of boosting employment.

Be forewarned though: there is only a weak link between these confidence readings and subsequent spending behavior, so we ought not to  declare the muddle over. The most important ramification of the lifting mood may be more in the political arena than in the economy. Rising optimism augurs well for Obama and his re-election chances. Quite what he will do in his second term is another question altogether. We can discuss that at another time. Meanwhile today’s news suggests that the long slow recovery continues and may be accelerating just a bit.