Consumer confidence has hit a nine-year high in the US just six weeks before the country will elect its next President.
According to The Conference Board, optimism jumped to 104.1, its highest level since the recession, from 101.8 one month ago, on an index where 100 represents the long-term average. Analysts had expected the index would dip as low as 99.
The figures are a welcome piece of good news for the world’s largest economy following a summer which saw the jobs recovery falter and a number of other indicators stumble. A run of weak data was enough to persuade the US Federal Reserve to hold off until after the 8 November ballot to raise interest rates for the second time since the financial crisis. At that meeting, rate-setters hinted they would hike rates in December if the economy holds up.
Ian Shepherdson, chief economist at Pantheon Macroeconomics said the figures were “surprisingly, and comfortingly, strong” and should “support robust, though not spectacular, growth in spending.”
Separate figures on the strength of the US’ service sector also showed grounds for optimism. Activity jumped higher above the no-growth 50 mark to 52 on the closely-watched purchasing managers’ index (PMI) out this afternoon. The climb, from 51 in August, and also above expectations, was the sharpest rise in the index since April.
Despite the encouraging signs, both business and shoppers sensed the benign picture could change within the next 12 months. Chris Williamson, chief business economist at IHS Markit, which compiles the PMI, said: “The service sector sent mixed signals in September, with faster growth of activity offset by gloomy forward-looking indicators”.
Businesses expect employment growth to falter and many said they had “lowered their charges in an effort to try and secure more new business.” Markit said the survey scores indicated the US economy would add around 120,000 jobs a month at its current rate - disappointing given some of the 250,000-plus numbers reached earlier this year.
However, analysts also pointed to consumers’ expectations of rising inflation, as opposed to the reports from businesses, over the next 12 months, which should promote spending and support wage growth - all of which will support the case of those on the Fed’s rate-setting Federal Open Market Committee (FOMC) arguing for a rate rise.