Consumer Confidence Posts Upside Surprise

The University of Michigan's reading on consumer confidence rose more than expected in August. The index climbed to 97.6 from 93.4 in July, much more than the the 94.8 forecast. It hit a 13-year high in January with a reading of 98.5.

Treasury yields, which had been heading lower, reversed course following the 10 a.m. ET report. The yield on the 10 -year note climbed to 2.21% by 1p.m. ET, from a low of 2.16% just prior to the release.

The index still shows that Republicans are much more optimistic than Democrats. But the university's chief economist of surveys Robert Curtin suggested Republican optimism is likely to fall when the impact of violence in Charlottesville is fully factored in.

He comments:

Too few interviews were conducted following Charlottesville to assess how much it will weaken consumers' economic assessments. The fallout is likely to reverse the improvement in economic expectations recorded across all political affiliations in early August. Moreover, the Charlottesville aftermath is more likely to weaken the economic expectations of Republicans, since prospects for Trump's economic policy agenda have diminished. Nonetheless, the partisan difference between the optimism of Republicans and the pessimism of Democrats is still likely to persist, with Independents remaining as the bellwether group. At this point, the data continue to indicate a gain of 2.4% in personal consumption expenditures in 2017.

Michelle Girard, chief US economist at NatWest Markets offers this additional analysis:

The improvement in early August was due mainly to a more positive outlook for the overall economy as well as personal finances. In each survey over last 3 months, half of all consumers said their finances had improved recently, the most since 2000. In addition, an improved financial situation was anticipated by 41% of all consumers, a shade below the 2017 peak of 42%-the all-time peak being 49% in 1998. Interestingly, the report noted that a subtle change in people's views toward discretionary purchases has recently begun. Specifically, consumers are becoming less cautionary and more likely to base their spending decisions on a renewed confidence in their jobs and incomes...
Finally, inflation expectations were little changed. The one-year ahead figure held steady at 2.6% while the 5-10 year expected inflation rate slipped slightly from 2.6% to 2.5%.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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