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Americans haven’t felt this good about the economy in almost two years
Josh Schafer, Reporter – July 14, 2023
A commonly followed measure of consumer confidence in the US economy just increased to the highest level since September 2021.
The first July reading of the University of Michigan Consumer Sentiment Index showed a reading of 72.6 on Friday. The print came in significantly higher than the 65.5 economists had expected and reflected a 13% increase from the month prior. That marks the fastest pace since December 2005, when the economy was recovering from Hurricane Katrina.
“The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets,” Surveys of Consumers director Joanne Hsu said in the release.
Consumers have had plenty to be bullish about recently, including a month of largely strong economic data, upbeat reports to kick off second quarter earnings, and waning fears of a second Federal Reserve rate hike in the back half of the year propelling the 2023 stock market rally higher.
A 19% surge in long-term business conditions and a 16% increase in short-run business conditions were the primary drivers behind Friday’s surprise print, according to the University of Michigan. The report did, however, include a slight uptick in consumers’ inflation expectations.
The expectations for inflation over the next year are now at 3.4%, up from 3.3% in June but down from the highs of 5.4% in April 2022. Analysts had anticipated one-year inflation expectations to tick down to 3.1%
“Easing concerns about a recession, which had been garnering a ton of headlines in the media for most of the year, may have helped push sentiment and expectation higher,” Oxford Economics chief US economist Ryan Sweet wrote on Friday.
The Friday release follows a week of upbeat economic data. On Wednesday, the Consumer Price Index for June came in cooler than projected, rising at its slowest pace since March 2021. On Thursday, the Producer Price Index painted a similar picture. The labor market, meanwhile, continued to show resilience with weekly jobless claims of 237,000 coming in lower than expectations for 250,000 claims and below the week prior’s 249,000 claims.
Last week’s June jobs report showed the labor market is cooling with nonfarm payroll additions coming in short of expectations for the first time in 15 months. But economists were quick to note that the economy still added 209,000 jobs, the unemployment ticked lower to 3.6%, and average hourly earnings grew 4.4% from the year prior.
At scale, that data paints a picture of a tight labor market where Americans have jobs while prices for goods continue to decrease.