Strong job market fuels consumer confidence
By Judi Marcelonis -- Industrial Distribution, 10/1/1998
The Conference Board's Consumer Confidence Index climbed 1.3 points in June, following a slight nine-tenths of a point drop in May. At 137.6 (1985=100), consumer confidence is now at its highest level recorded this year and a whopping 7.7 points, or 5.9%, above the confidence level registered in June 1997.What has propelled consumer confidence to such dizzying heights? The robust job market has been the driving factor. With unemployment at a 28-year low, labor markets are stretched to the limit and this has placed upward pressure on wages. Low inflation is further boosting real wage gains.
Expanding payrolls and real wage increases have buoyed confidence and expectations about future conditions. About 44% of surveyed Americans believe that jobs are plentiful, with nearly 90% of those surveyed expecting employment conditions to remain at least as good for the next six months.
Most Americans view the economy as robust and believe that business conditions will remain basically the same over the next six months. About 18% of those surveyed expect the economy to improve, while less than 5% believe that business conditions will deteriorate.
Consumer confidence among the nation's nine major regions ranged from a low of 115.7 in the Middle Atlantic region to a high of 151.8 in the West North Central states in June.
Over half of the regions posted confidence levels in the 131 to 136 range. All regions reported a boost in confidence about economic conditions except for the East South Central and East North Central divisions. The strike by General Motors employees in the East North Central region has most certainly prompted the weakening in confidence there over the last two months.
The most optimistic region was also the region with the largest gain in consumer confidence over the month. Confidence in the West North Central section jumped 11.1 points in June, resulting in a 15.7% increase over levels recorded in June 1997. Placing a distant second, New England confidence gained 6.8 points in June to a level of 133.8. Rounding out the top three, confidence in the Middle Atlantic region climbed 5.7 points, soaring 21.9% over year-ago levels. Consumer confidence will likely remain high in the short-term. Continued employment growth will coincide with real wage increases, as employers boost earnings to attract workers.
Meanwhile, diminished demand from Asian countries and a strong U.S. dollar has pressured domestic prices downward, and this will continue to keep inflation subdued. However, weak export growth, declining profits and buildup of unwanted inventory will eventually cause economic growth to slow. This will dampen consumer spirits and bring confidence down from its elevated levels.
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