Consumer Optimism May be Building

[Aug 6, 2007.]

 

Consumer optimism appears to be growing again, according to a Reuters/University of Michigan Surveys of Consumers. The optimism appears to be fueled by renewed hope in the job market and in salary situations.

The July consumer sentiment reading was 90.4. While the reading was below the figure that had been forecast, it was far better than the June reading of 85.3, which represented a 10-month low.

The survey's authors said, "Just 19% of all consumers expected the economy to worsen in the year ahead, and nearly half of all consumers expected favorable conditions in the economy to persist to at least mid-2008." Still, concerns about the housing market and the subprime mortgage sector seem to be having an effect on consumer confidence.

The optimism appears to be greatest in higher income households. In fact, those with lower incomes appear to be feeling the effects of sky-high gas prices and mortgage troubles.

The survey's authors noted, "Moreover, the (housing) fallout has just begun with mortgage rate resets expected to mount during late 2007 and early 2008."

Meanwhile, the one-year inflation index is at 3.4% this July—that's the same rate it was in June. The 5-year inflation index jumped from 2.9% to 3.1% at June's end. While inflation still remains a concern, it does not appear to be as frightening a prospect as it has been in months past.

Consumer confidence remains an important economic barometer. It's often a primary indicator of how consumer spending will fare in the months ahead. Consumer spending itself is a powerful economic tool, since it accounts for a full 2/3 of the American economy.

Yet, it may be too soon to say whether the economy is on solid financial ground. While consumer confidence may be encouraging, the housing slump threatens to draw the life right out of the economy.

Julie Ann Amos
August 6th 2007

Recent News

• Consumer Optimism May be Building
  Consumer optimism appears to be growing again, according to a Reuters/University of Michigan Surveys of Consumers. The optimism appears to be fueled by renewed hope in the job market and in salary situations. [6th August 2007]


• Home Construction Rises
  The troubled housing industry received some positive news recently with a report that new home construction increased 2.3% in June. However, enthusiasm was dampened by the fact that the new construction rate in May was revised downward. [2nd Aug 2007]


• Economic Growth May Be Lower Than Expected
  The head of the Federal Reserve Board is taking a conservative course when it comes to predictions about the economy—a move that's being applauded by some in the investment sector. [2nd Aug 2007]


• Inflation Concerns Continue
  It appears that members of the Federal Reserve Board continue to be concerned about the specter of inflation.[2nd Aug 2007]


• Fed Surveys Consumers About Credit
  The Federal Reserve Board has now released its report on credit card solicitations and applications. The findings are significant, since the study included personal one-on-one interviews with American consumers. [1st Aug 2007]


• Gaining Credit May Be Getting Tougher for College Grads
  A change in practices in the U.S. credit card industry may mean that it will be tougher than ever for college graduates to establish credit. [1st Aug 2007]


• Mortgage Rates Unmoved
  Prospective homebuyers received some encouraging news recently, thanks to the fact that rates on 30-year mortgages stayed steady. The decision to maintain the status quo might have been surprising to some, given all the concerns being raised about inflation at this point in time. [1st Aug 2007]