August 25, 2015 | Uncategorized

Consumers Confident Amid Market Turmoil

U.S. consumer confidence remained strong as world stock markets entered into a period of turmoil due to a significant drop in Chinese stocks. The monthly confidence numbers, which were reported recently by the Conference Board, set a seven-month high watermark in August. This, along with positive news from the housing sector, indicates strength in the U.S. economy. However, the news came in a week when a dramatic drop in the Chinese stock market roiled global equity markets. These mixed economic signals will make for an interesting fall as businesses plan for their year-end.

The Conference Board, which publishes a monthly measure of consumer confidence, said its index increased to 101.5 in August. That is a 10.5-point jump from the previous month and the highest reading of consumer confidence since January.

“Consumer confidence rebounded in August, following a sharp decline in July,” said Lynn Franco, Director of Economic Indicators at The Conference Board, according to a press release by the organization. “Consumers’ assessment of current conditions was considerably more upbeat, primarily due to a more favorable appraisal of the labor market. The uncertainty expressed last month about the short-term outlook has dissipated and consumers are once again feeling optimistic about the near future. Income expectations, however, were little improved.”

One place the consumer confidence appears to be reflected is in the housing market, which saw seasonally adjusted growth in new home sales of 5.4 percent, according to numbers released by the Commerce Department. Home pricing also remained stable according to the S&P/Case-Shiller U.S. National Home Price Index, which reported in August a year-over-year gain with a 4.5% annual increase in June.

“Nationally, home prices continue to rise at a 4-5% annual rate, two to three times the rate of inflation,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices, according to a press release by the organization.

These positive economic indicators were countered in the last week of August as world markets reacted to a significant drop in the Chinese stock market. U.S. markets saw some of their largest one-day losses since 2010 as they absorbed the news of the Chinese stock market drop. The dramatic gains and losses in the U.S. markets that followed the initial sign of trouble in China have set the stage for a period of uncertain global economic conditions.

The reaction of markets, businesses and regulators to these mixed economic conditions will determine how 2015 comes to a close. Prior to the drop in the Chinese stock market, U.S. businesses were bracing for a reversal of the Federal Reserve’s longstanding policy of keeping interest rates low. Momentum in the economy and the potential for inflation had prompted the Federal Reserve to begin sending signals that it intended to raise rates. Will the August stock market storm cause the Federal Reserve to reevaluate? That has yet to be seen. What is clear is that we are in for some interesting economic conditions this Fall.  For a business, that necessitates staying in touch with current economic developments, being aware of the available options and knowing when to act.