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

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