Consumer Confidence Rises against Low Expectations

By Stevie Duffin Updated on 12/14/2012

By Daniel Duffield

According to a survey released on Friday, consumer sentiment rose to a three-month peak as American outstanding debt levels decreased, despite pessimism about the future.

Reports from the manufacturing sector presented an ambivalent image, as factory orders rose to exceed expectations in July, though business activity in the Midwest has decreased somewhat in August.

Manufacturing has spearheaded the American recovery following the 2007-2009 recession, although the industry has lost some of its drive recently due to the unstable economic climate in Europe and elsewhere that has stifled the demand for U.S. products.

Despite this, American consumers had higher confidence levels this month. According to the Thomson Reuters/University of Michigan’s data on overall consumer sentiment for August, levels rose to 74.3, the highest recordings since May.

The survey’s assessment of the current economic situation also rose, from 82.7 to 88.7, constituting the highest level since January of 2008.

Bolstered by pricing discounts and recent, historically-low interest rates, buying has increased according to the survey. However, trimming debt comprised the greatest contributor to American optimism.

Survey director Richard Curtin stated that consumer trends showed that many Americans have begun to acknowledge positive trends in the removal of their debt and the value of their assets, rather than discussing income changes.

Nevertheless, the survey’s measurements of consumer expectations declined to 65.1 from 65.6, reaching the lowest recording since December of 2001.

According to the survey, 50% of those surveyed believed that they were in a worse financial standing than five years ago, and the majority of surveyed Americans expect no increase in income during the next year.

Another survey taken earlier this week by the Conference Board indicated that consumer confidence had reached its lowest reading since November, attributed partially to increases in gasoline prices.

Economics anticipate that the Federal Reserve will attempt to restart growth with a monetary stimulus. Though Fed Chairman Ben Bernanke stated that a weakened labor division is a significant cause for concern and that the bank would step in if necessary, he did not indicate whether or not this action is inevitable during his speech on Friday.

The Fed has already added $2.3 trillion into the financial system during recent years in two distinct stimulus efforts. On September 12, the Fed will begin its next policy discussion.

Joshua Shapiro, chief U.S. economist at MFR, a global consulting firm, stated that Q3 speculation is largely debatable and that no generally agreed view is held.

Analysts have said that indications of economic improvement in recent data may cause the Fed to wait for the time being.

Statistics released Friday demonstrated that new factory good orders have risen by the largest annual increase in July.

However, the Institute for Supply Management-Chicago stated that its business activity fell in August despite an increase in new orders, according to its index.

"You have a good strength in orders and employment, but the trouble is that Chicago(PMI) has its own motion and is not reflective of the national trend," said Pierre Ellis, senior global economist at Decision Economics in New York.

Other indicators within the manufacturing industry have given some indication of difficulty. The Institute for Supply Management’s monthly released survey stated that U.S. manufacturing decreased for the second consecutive month in July.