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First Cut: July Consumer Confidence Index highest in 8 months, consumers shaking off worries about economic slowdown

The Conference Board’s Consumer Confidence Index rose to 135.7 in July after a revised 124.3 in June (previously 121.5) and reached its highest level since 136.4 in November 2018. Confidence had slipped late in 2018 due to signs of slower economic activity and concerns the hot job market would cool, and worries were not relieved by the partial federal government shutdown that marked most of January, or that uncertainty persisted with unsettled trade and tariff policy. However, with little indication that the labor market has suffered more than minor setbacks in spite of more modest expansion, consumers are once again expressing yet more elevated levels of optimism.

The index for present conditions was up to 170.9 in July after 164.3 in June, and was the highest since 172.8 in February. The index for six month expectations jumped to 112.2 in July after 97.6 in June. Consumers were probably buoyed by the prospect of lower interest rates for big-ticket purchases like homes and motor vehicles, and by steadily rising wages and unimpaired discretionary spending from still low gasoline prices.

All five of the index components were up in June, although present business conditions was barely to and only slightly better than the prior month. Optimism about present employment was decidedly strong month-over-month. Future conditions were also viewed with greater confidence. Expected personal income managed to return to a firm positive contributor to confidence in July from June, and expectations for employment and business conditions were the two strongest contributors to overall confidence.

High levels of confidence do not necessarily translate into higher consumer spending, especially during a sustained period of elevated readings. Consumer only have so much to spend, and many are still sensitive to taking on debt. However, a sense of job security and rising incomes can mean easier budgets for discretionary purchases, and that seems to be part of what is driving confidence at present.

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