Dive Brief:

• Consumer confidence in August edged up to the highest level in six months as improving expectations for price pressures and business conditions counteracted a dimming view of the future job market, the Conference Board said Tuesday.
• The Consumer Confidence Index rose to 103.3 from 101.9 last month but persisted in a narrow, two-year-old range, the board said. Optimism about the labor market ebbed, with 17.5% of survey respondents anticipating fewer jobs compared with 16.4% last month.
• “Consumer assessments of the current labor situation, while still positive, continued to weaken and assessments of the labor market going forward were more pessimistic,” Conference Board Chief Economist Dana Peterson said in a statement, noting a recent rise in unemployment. “Consumers were also a bit less positive about future income.”

Dive Insight:

The Conference Board’s report aligned with a similar survey this month by the University of Michigan.

Confidence among consumers — whose spending fuels about 70% of economic growth — inched up in some respects in August while remaining unchanged overall compared with July, the university found.

Expectations for personal finances improved and the five-year economic outlook hit the highest level in four months, the university said on Aug. 16, reporting on its survey of consumer sentiments.

Consumers are “unlikely to remain so upbeat,” Pantheon Macroeconomics Senior U.S. Economist Oliver Allen said Tuesday in a note to clients after the release of the Conference Board report.

“Both confidence and consumption growth will weaken significantly from here, given that a softening labor market, slowing real income growth and already-low personal savings rate all point to a difficult fundamental backdrop for consumers,” Allen predicted.

The jobless rate rose last month to 4.3% from 4.1% in June and 3.7% in January. Meanwhile, payrolls expanded only 114,000, below forecasts and the lowest monthly increase this year.

The weakening job market prompted Federal Reserve Chair Jerome Powell on Friday to signal that the central bank intends to trim borrowing costs at its Sept. 17-18 meeting.

“The time has come for policy to adjust,” Powell said Friday, suggesting that policymakers will reduce the federal funds rate. “Inflation is now much closer to our objective” of 2%, he said, noting that policymakers are focused more on job market health than earlier this year.

The central bank aims to avert the widespread job loss that often occurs during policy tightening, Powell said. “We do not seek or welcome further cooling in labor market conditions,” he said.

Responding to increasing signs from Fed officials of future monetary easing, the share of consumers expecting lower borrowing costs rose to 31.5%, the highest level since April 2020, the Conference Board said.

Meanwhile, average expectations for inflation in 12 months fell to 4.9%, the lowest level since March 2020 and “consistent with slower overall inflation and declines in some goods prices,” the board said.

When assessing business conditions, 20.8% of consumers gave a “good” rating compared with 19.2% in July, the Conference Board said.

“The proportion of consumers predicting a recession was stable and well below the 2023 peak,” Peterson said.

Gross domestic product will likely grow at a 2% annual rate during the third quarter, the Atlanta Fed said in a report Monday.