American consumers are becoming a little more optimistic about the economy.
The Conference Board’s index rose to 100.3 from a revised June reading of 97.8, a slight increase but still below pre-pandemic levels and not enough to lift mood overall.
The outlook for the next six months has brightened, reaching 78.2, the highest since January, but it’s not all rosy: the current situation index fell to its lowest level in more than three years, suggesting that while expectations are high, reality is not keeping up.
“Confidence rose in July but failed to break out of the narrow range it has been in for the past two years,” said Dana M. Peterson, chief economist at the Conference Board. “Although consumers are relatively optimistic about the labor market, they still appear concerned about rising prices and interest rates and uncertainty about the future, conditions that may not improve until next year.”
The decline in pessimism in the July survey may reflect Joe Biden’s announcement that he would not seek a second term and rising hopes among Republican voters. A separate University of Michigan survey released last week showed a significant increase in optimism among Republicans and a decline among Democrats.
While many traditional economic indicators held steady in July, consumers witnessed a series of breathtaking news events: a gunman attempted to assassinate Donald Trump, Joe Biden dropped out of the race, Republicans held a tumultuous convention in Milwaukee, J.D. Vance was named Trump’s running mate, and Biden said he wanted Vice President Kamala Harris to succeed him as the Democratic nominee.
Inflation remains the biggest drag on consumer confidence.
“Our July survey responses indicate that rising prices and inflation, especially for food and grocery items, remain the leading drivers of consumers’ economic outlook, followed by the U.S. political situation and the labor market. The percentage of respondents who believe the 2024 election will have an impact on the economy was lower than in our July 2016 survey, although mention of the upcoming election has increased,” Peterson said.
The survey showed the job market is perceived to be cooling: Only 34.1% of consumers said jobs are plentiful, the lowest share since March 2021. The number of people who said work is “hard to find” increased slightly.
According to the Conference Board, average 12-month inflation expectations are “stable” at 5.4%, which is high by historical standards but well below the peak of 7.9% reported in 2022. The share of consumers who expect interest rates to rise over the next 12 months fell for the second straight month to 50.3%, the lowest since February 2024. The Federal Reserve has signaled it plans to cut interest rates later this year.
