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Consumer confidence rebounds as falling gasoline prices provide relief to U.S. households

By on August 30, 2022 0

KEY POINTS OF US CONSUMER CONFIDENCE:

  • U.S. consumer confidence rose to 103.2 in August from a downwardly revised reading of 95.3 in July, beating consensus expectations calling for a rebound to 97.9
  • The recovery can be partially attributed to a sharp decline in gasoline prices, but inflation fears have not gone away
  • US stocks erase morning gains and plunge into negative territory, but the move is likely tied to fears over the Fed’s tightening cycle rather than today’s data

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After much pessimism and gloom at the start of the summer, a popular gauge of U.S. consumer sentiment improved this month, as falling gasoline prices gave Americans a pause at the pump, helping to blunt some of the decades-long high inflation. , which has weighed on household finances since the beginning of the year.

According to the Conference Board, consumer confidence in August rose to 103.2 from a downwardly revised reading of 95.3 in July, beating expectations for an advance to 97.9 and ending a decline. three months of feeling. Although the recovery is not significant, it is nonetheless a step in the right direction and represents a positive sign for future consumption, the main pillar of the American economy.

Digging deeper into today’s numbers, the Current Situation Index, based on the current business and labor market outlook, rose from 139.7 to 145.4, registering a gain for the first time since march. This rebound indicates a certain stabilization of the growth profile and reduces the probability of a further contraction in GDP in the third quarter.

Elsewhere, the expectations index, which tracks near-term earnings prospects, the business environment and the labor market, rose from 65.6 to 75.1, but remained anchored below the key level of 80, suggesting that recession risks have not completely dissipated. Lower gasoline prices likely contributed to the improvement in this measure, but strong inflationary pressures in other sectors of the economy likely prevented a larger rise.

Overall, the Conference Board results are encouraging, but do not change the underlying picture: the US economy is not out of the woods yet. That said, stubbornly high consumer prices and rising interest rates will continue to create serious headwinds for household spending and economic activity over the medium term. In this environment, sporadic episodes of heightened volatility could become commonplace, making it difficult for risk appetite to recover significantly and sustainably.

US stocks erased early morning gains and dipped into negative territory after today’s data crossed the wires, but the move is likely tied to worries about the Fed’s tightening cycle following the hawkish message of President Powell at the Jackson Hole Symposium. Investors believe the aggressive normalization roadmap undertaken by the central bank could trigger a major downturn, weighing on corporate earnings.

US CONSUMER CONFIDENCE CHART

Source: Conference Board

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—Written by Diego Colman, Market Strategist for DailyFX

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