In August, Americans exhibited a heightened sense of optimism toward the economy, notwithstanding certain considerations regarding the labor market.
A consumer propels a shopping cart laden with goods along the outside of a Whole Foods Market grocery store in El Segundo, California on August 26, 2024.
Key Takeaways:
Consumer sentiment towards the economy improved in August.
Anticipations for inflation in the next year have somewhat decreased.
In August, consumer confidence experienced a modest increase as Americans cautiously managed a combination of increased optimism regarding the economy’s future and concerns about the labor market.
The consumer confidence index, as reported by the Conference Board, increased to 103.3 units. Additionally, the reading for July was adjusted upwards to 101.9 units from the prior value of 100.3. Both the current economic conditions and future projections indexes showed improvement.
“Consumers maintained a varied range of sentiments in August,” stated Dana Peterson, the chief economist of the business organization. As compared to July, their outlook on business conditions, both present and prospective, was more optimistic. However, they also expressed greater apprehension about the labor market.
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“The evaluations of consumers regarding the present labor situation, although still favorable, have been progressively declining, and their predictions for the future labor market are increasingly negative,” Peterson further stated. This is probably indicative of the current surge in unemployment. Consumers exhibited somewhat lower levels of optimism over future income.
“The evaluations of consumers regarding the present labor situation, although still favorable, have been progressively declining, and their predictions for the future labor market are increasingly negative,” Peterson further stated. This is probably indicative of the current surge in unemployment. Consumers exhibited somewhat lower levels of optimism over future income.
Furthermore, the index consistently displays varying viewpoints based on the age and wealth of the participants.
“In August, consumer confidence decreased among those under 35, but it rose among those aged 35 and above,” Peterson stated. On a six-month rolling average, the level of confidence among young consumers remained the greatest. However, while the headline Index showed general improvement, confidence decreased among consumers with an income of less than $25,000. Based on a six-month moving average, consumers with an annual income over $100,000 maintained the highest level of confidence. The level of confidence among customers with an income ranging from $15,000 to $24.9K continued to decline and was nearly equivalent to that of those earning less than $15,000.
Inflation expectations declined little, as respondents anticipate a 4.9% increase in prices over the next year, which is much higher than the current 2.9% level reported by the consumer price index in July. However, the figure is at its lowest point since March 2020, when the COVID-19 pandemic caused a significant surge in prices.
Curiously, while several consumer surveys conducted in recent years have shown clear variations depending on political influence, the percentage of respondents who believed that the 2024 elections would affect the economy remained consistent in August write-in responses. This percentage was somewhat higher than the levels observed in 2020, but much lower than the level recorded in August 2016.
According to EY Chief Economist Gregory Daco, the fluctuations in the stock market during early August are not altering consumer behavior. In fact, the Dow Jones Industrial Average reached a new peak on Monday.
“The lack of retrenchment among business leaders and consumers, together with the volatility in the financial market, can be attributed more to the Federal Reserve’s delayed easing policy rather than any inherent economic weakness,” stated Daco. “This is a positive development as the Federal Reserve’s policy easing in the next months is expected to bolster the economy and decrease the volatility of financial markets. The projected mean real GDP growth of 2.5% in 2024, with a subsequent decrease to 1.7% in 2025.
At an annual growth rate of 5.4%, the S&P CoreLogic Case Shiller national home price index achieved a new peak in June. Nevertheless, the increase was somewhat lower than the 5.9% recorded one month prior.
New York experienced the greatest increase, standing at 9% compared to the previous year, while San Diego and Las Vegas followed closely at 8.7% and 8.5% respectively.
High prices, low inventory, and high mortgage rates are impacting the housing market, however, these factors have somewhat decreased in recent weeks due to the Federal Reserve’s indication of imminent interest rate cuts.
“We anticipate a slight deceleration in the rate of home price increase,” stated Danielle Hale, the Chief Economist of Realtor.com. Indeed, the Realtor.com 2024 projection update predicts a modest growth rate of 4.6% for the annual period. Despite a 30% decrease in the number of homes available for sale compared to the levels in 2017 to 2019, the corresponding number of home sales has remained somewhat low.
According to Realtor.com statistics, the current low but rapidly increasing for-sale inventory has resulted in a greater market equilibrium than anticipated, leading to an increase in the proportion of sellers implementing price reductions, despite declining demand. This should facilitate the preservation of a controlled rate of increase in property prices.