Americans Feel Optimistic About Economy, Reaching a Two-Year High

July 14, 2023: Consumer confidence in the US economy has soared to its highest level since September 2021, according to the latest University of Michigan Consumer Sentiment Index. The July reading of 72.6 surpassed economists’ expectations of 65.5, marking a 13% increase from the previous month. This growth rate is the fastest since December 2005, during the recovery from Hurricane Katrina.

The surge in consumer sentiment can be attributed mainly to the continued slowdown in inflation and stability in labor markets, as highlighted by Joanne Hsu, the director of Surveys of Consumers. Favorable economic data, positive reports on second-quarter earnings, and diminishing concerns of a second Federal Reserve interest rate hike in the latter half of the year have also contributed to the optimism among consumers.

The primary drivers behind this positive sentiment were a notable 19% rise in long-term business conditions and a 16% increase in short-run business conditions, as the University of Michigan reported. However, the survey did reveal a slight increase in consumers’ inflation expectations.

Although inflation expectations for the next year have risen to 3.4% from 3.3% in June, they have decreased from the peak of 5.4% recorded in April 2022. Analysts had predicted a decrease to 3.1% in one-year inflation expectations.

Ryan Sweet, the chief US economist at Oxford Economics, suggests that the easing concerns about a recession, which had dominated headlines throughout the year, significantly boosted consumer sentiment and expectations.

This positive news follows a week of encouraging economic data. The Consumer Price Index for June has risen slowly since March 2021, and the Producer Price Index reflected a similar trend. Additionally, the labor market demonstrated resilience, with weekly jobless claims coming in lower than expected.

Although the recent jobs report indicated a cooling labor market, with nonfarm payroll additions falling short of expectations, it still showed the addition of 209,000 jobs, a decrease in unemployment to 3.6%, and a 4.4% growth in average hourly earnings compared to the previous year.

Taken together, this data paints a picture of a tight labor market in which Americans are employed while experiencing decreased prices for goods.

Overall, the increased consumer confidence signals optimism about the economy, driven by positive economic indicators and improving conditions in the job market.