U.S. consumer confidence jumps to a two-year high as inflation eases

WASHINGTON (AP) — U.S. consumer confidence shot to the highest level in two years this month as inflationary pressures eased and the American economy continued to show resilience in the face of dramatically higher interest rates.

READ MORE: Inflation drops sharply to 3 percent, lowest point in more than 2 years

The Conference Board, a business research group, said its consumer confidence index rose to 117 in July from a revised 110.1 in June. The gauge beat the 110.5 that economists had expected and was the highest since July 2021.

The index measures both Americans’ assessment of current economic conditions and their outlook for the next six months. Both improved in July. The future expectations index rose to 88.3 in July, clearing the recession threshold of 80 recorded in June.

Economists closely monitor Americans’ spirits because consumer spending accounts for around 70% of U.S. economic activity. The Conference Board index fell more or less steadily from mid-2021 to mid-2022 as surging prices ate into household budgets.

But confidence has come back, in fits and starts, over the past year as inflation eased in the face of 10 interest-rate hikes by the Federal Reserve. Fed policymakers are expected to raise their benchmark rate again Wednesday to the highest level in 22 years.

READ MORE: A Federal Reserve inflation index falls to lowest level in 2 years

The U.S. economy — the world’s largest — has proved surprisingly resilient in the face of sharply higher borrowing costs. Employers are adding a strong 278,000 jobs a month so far this year; and at 3.6% in June, the unemployment rate is not far off a half-century low.

Tumbling inflation and sturdy hiring have raised hopes the Fed just might pull off a so-called soft landing — slowing the economy just enough to tame inflation without tipping the United States into recession.

“Expectations for the next six months improved materially, reflecting greater confidence about future business conditions and job availability,” said Dana Peterson, the Conference Board’s chief economist. “This likely reveals consumers’ belief that labor market conditions will remain favorable.”