The US economy is experiencing a surge in consumer confidence, hitting its highest point in over two years. The Conference Board’s Consumer Confidence Index, a key indicator of economic sentiment, jumped to 108.7 in October, marking a significant 9.5 point increase from September. This surge in confidence, the strongest month-over-month gain since March 2021, has exceeded economist expectations and points towards a more optimistic view of the US economy.
The increase in consumer confidence is driven by positive changes across both major components of the index. The Present Situation Index, which reflects consumer perceptions of current business and labor market conditions, rose to 138.0 in October, up from 123.8 in September. This improvement suggests consumers are more optimistic about the current economic climate.
Similarly, the Expectations Index, which gauges consumer sentiment about the future, also saw a significant jump from 82.8 in September to 89.1 in October. This indicates a greater sense of optimism about future economic prospects and a move further away from the recession-warning threshold of 80.
Dana M. Peterson, chief economist at The Conference Board, emphasized the significance of these gains, stating, “Consumer confidence recorded the strongest monthly gain since March 2021, but still did not break free of the narrow range that has prevailed over the past two years.”
Improved Labor Market Sentiment and Business Conditions
The survey revealed a more positive outlook on both business conditions and job availability. A larger percentage of respondents reported positive views on business conditions, with 21.4% describing them as “good”, up from 18.6% in September. Meanwhile, those viewing conditions as “bad” decreased to 16.4% from 20.5% the previous month.
The labor market also witnessed a noticeable improvement in sentiment. 35.1% of consumers reported that jobs were “plentiful”, up from 31.3% in September. Conversely, the share describing jobs as “hard to get” dropped to 16.8% from 18.6%.
Peterson highlighted the positive shift in consumer assessments, stating, “Consumers’ assessments of current business conditions turned positive. Views on the current availability of jobs rebounded after several months of weakness, potentially reflecting better labor market data.”
Optimism About Future Economic Prospects Gains Traction
The optimism extends beyond the present, with consumers expressing greater confidence in the future economic outlook. This surge in optimism is observed across different age groups and most income levels.
Consumers aged 35-54 experienced the most significant rise in confidence, while households earning over $100,000 remained the most optimistic on a six-month moving average basis.
Peterson highlighted a notable shift in consumer sentiment around recession risks. “The proportion of consumers anticipating a recession over the next 12 months dropped to its lowest level since the question was first asked in July 2022,” she stated.
Mixed Signals on Inflation and Interest Rates
While inflation appears to be easing, consumers remain cautious about price increases. Average 12-month inflation expectations rose slightly to 5.3% in October from 5.2% in September. This increase could be attributed to persistent pressures on food and services prices, despite slowing gas prices and overall inflation.
Consumers also expressed caution regarding interest rates, with 47.5% expecting rates to rise in the next 12 months. This reverses a four-month decline in rate hike expectations. The share anticipating lower rates dropped to 30.3%.
However, despite these concerns, consumer sentiment about the stock market has improved. 51.4% of consumers expect stock prices to rise over the year ahead, the highest reading since the question was first asked in 1987, according to the Conference Board.
Political Concerns Fade as Economic Issues Dominate
Interestingly, the October survey showed a decline in consumer concerns around politics, even with the November elections approaching. “Election” ranked fifth among top concerns, trailing behind issues like prices, inflation, food, and groceries. This stands in stark contrast to previous election years, where “election” was a more prominent concern. In October 2016, it was the most mentioned topic, and in October 2020, it was second only to COVID.
The surge in consumer confidence in October suggests a positive outlook for the US economy, though persistent inflation and interest rate concerns continue to linger.
