Consumer confidence makes surprising rebound in July

consumer spending

Analyst say consumer spending needs to increase for real economic growth to occur. Image: 401(K)2012/Flickr/CC BY-SA

Consumer confidence, one of the leading economic indicators, made a surprising rebound in July, says a private sector report, released Tuesday. But does it truly presage any real economic growth?

Consumer confidence index

The industry group The Conference Board Consumer Research Center polled 500 random consumers nationwide between July 1 and July 19. Its index of consumer confidence grew to 65.9 percent, from June’s adjusted figure of 62.7 percent.

The increase was unexpected, coming after four months of decline. Industry analysts had predicted it would fall again to around 61.5 percent in July.

Consumer confidence is considered an important economic indicator because 70 percent of the economy is driven by consumer spending.

‘Historic low levels’

While any growth in consumer confidence is welcome news in the stubborn U.S. economy, it still is still well below the 90 percent required for a healthy economy.

The survey found that consumers in July had lower confidence than they did in June that their wages would increase in the next six months. That is in spite of their showing slightly more confidence that business conditions and hiring would improve in that same time period.

Conference Board director Lynn Franco warned that continued growth is unlikely as long as wages remain stagnant:

“Despite this month’s improvement in confidence, the overall index remains at historically low levels… While consumers expressed greater optimism about short-term business and employment prospects, they have grown more pessimistic about their earnings. Given the current economic environment — in particular the weak labor market — consumer confidence is not likely to gain any significant momentum in the coming months.”

Consumer spending remains cautious

That lack of confidence in the labor market, as well as worries of inflation, translates into more cautious consumer spending. The economy grew only 1.5 percent in the second quarter, slowing from the first quarter’s two percent growth. A separate report from the Commerce Department showed Tuesday that personal spending remained unchanged from June, even though wages increased slightly by 0.5 percent.

The increased confidence indicated by the report was likely, at least in part, a reflection of improvements in the housing market and lower gasoline prices. Some economists doubt, however, that it predicts any real growth in spending.

Scott Brown, chief economist at Raymond James & Associates Inc. said:

“The increase was partly in expectations for business conditions and less pessimism on the future job market, but very little change in the outlook for household income and that is probably more important.”



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