US Consumer Confidence Rises Strongly In October: Stock Market Sentiment Hits New Highs

Consumer confidence in the U.S. economy soared in October, marking the strongest month-over-month increase since March 2021, according to the Conference Board’s latest report.

The Consumer Confidence Index jumped to 108.7, up significantly from 99.2 in September and well above economist expectations of 99.5, as tracked by TradingEconomics.

Confidence Index Rises, Driven By Broader Optimism

The Conference Board's Consumer Confidence Index, a key gauge of economic sentiment, rose by nearly 10 points in October to reach 108.7. This increase was fueled by improvements across both major components of the index.

The Present Situation Index rose from 123.8 in September to 138.0 in October, as consumers viewed current business and labor market conditions more favorably.

The Expectations Index increased from 82.8 to 89.1, moving further away from the recession-warning threshold of 80.

Dana M. Peterson, chief economist at The Conference Board, highlighted the significance of October’s gains, stating, "Consumer confidence recorded the strongest monthly gain since March 2021, but still did not break free of the narrow range that has prevailed over the past two years."

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Labor Market Sentiment And Business Conditions Improve

In October, more consumers reported positive views on both business conditions and job availability. The survey found:

• 21.4% of respondents described business conditions as "good," up from 18.6% in September.
• Those viewing conditions as "bad" decreased to 16.4% from 20.5% the previous month.

Labor market sentiment also showed noticeable improvement:

• 35.1% of consumers reported that jobs were "plentiful," up from 31.3% in September.
• The share describing jobs as "hard to get" dropped to 16.8% from 18.6%.

According to Peterson, "Consumers' assessments of current business conditions turned positive. Views on the current availability of jobs rebounded after several months of weakness, potentially reflecting better labor market data."

Optimism About Future Economic Prospects Gains Traction

October's confidence gains were broad-based, with optimism evident across all age groups and most income levels.

Consumers aged 35-54 saw the sharpest rise in confidence, while households earning over $100,000 remained the most optimistic on a six-month moving average basis.

Peterson highlighted a notable shift in consumer sentiment around recession risks, stating, "The proportion of consumers anticipating a recession over the next 12 months dropped to its lowest level since the question was first asked in July 2022."

Mixed Signals On Inflation, Interest Rates, Strong Sentiment On Stocks

Despite signs of easing inflation, consumer expectations for price increases in the year ahead nudged slightly higher.

Average 12-month inflation expectations rose to 5.3% in October from 5.2% in September. This increase could reflect persistent pressures on food and services prices, even as gas prices and overall inflation have slowed.

Consumers were also cautious about interest rates:

• 47.5% of respondents expect interest rates to rise in the next 12 months, reversing a four-month decline in rate hike expectations.
• The share anticipating lower rates dropped to 30.3%.

Meanwhile, “consumers became more upbeat about the stock market: 51.4% of consumers expected stock prices “to increase over the year ahead, the highest reading since the question was first asked in 1987,” the Conference Board wrote.

On Tuesday, the S&P 500 Index — as tracked by the SPDR S&P 500 ETF Trust SPY — closed 0.2% higher, hovering at a less than one percentage point distance from its record highs set earlier this month.

Political Concerns Fade as Economic Issues Dominate

Interestingly, October’s survey showed a decline in consumer concerns around politics, even as the November elections approach.

"Election" ranked fifth among top concerns, trailing behind issues like prices, inflation, food, and groceries. This marks a stark contrast to previous election years; in October 2016, "election" was the most mentioned topic, and in October 2020, it was second only to COVID.

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