Conference Board Index of Consumer Confidence – August 2009

Consumer confidence rebounds as labor market improves and “cash for clunkers” reaches maximum impact

Bottom Line

The Conference Board’s Consumer Confidence Index rebounded by a sharp 6.7 points to 54.1 in August. 

The present situation index moved up slightly, by 1.6 points, to 23.4.
The expectations index leapt by just over 10 points to 73.5.
Buying intentions for autos and homes improved. 

Outlook

Consumer confidence bounced back sharply in August, with overall confidence moving back up to near the recent May upward spike of 54.8.

The August rebound was mainly concentrated on a huge 10.1 point gain in expectations. We believe that a number of factors contributed to this, including sustained gains in the U.S. equity markets, positive news on housing market conditions, and a modest improvement in labor market conditions in August.

A lower percentage of respondents said that jobs were hard to get, while a higher percentage reported that jobs were plentiful. The job market improved due to recent re-hiring announcements by U.S. auto manufacturers, as production plans were ramped up in response to the recent highly successful “cash for clunkers” program, which led to a sharp drop in inventories for certain models.

Buying intentions for autos and homes also picked up, spurred by recent improvements in housing market conditions, better housing affordability, and deep price discounts offered by dealers in conjunction with the “cash for clunkers” program.

While the bounce back in August consumer sentiment is good news, it is not likely that we will see a sustained improvement in September. The “cash for clunkers” program has ended, and this will take some of the wind out of the sails of auto buying intentions. More likely we will continue to see a jagged pattern with a very gradual upward trend over the next several months. We are not looking for the consumer sector to be much of a driver of the recovery beyond the third quarter, when auto sales are expected to spike in response to the temporary “cash for clunkers” program.