WASHINGTON – Consumer confidence rebounded over the past month as people felt better about current economic conditions as well as making investments. The RBC CASH Index (search), based on polling conducted by Ipsos, showed consumer confidence (search) rising to 84 in June, an improvement from May's 78.2, which had marked the lowest reading since October 2003.
The bounce back comes as the economy, which hit a rough patch in the early spring, is now moving along at a solid pace despite high energy prices.
"The economy remains on a firm path," said Richard Yamarone, economist at Argus Research Corp. "We are creating jobs, albeit at a slower pace. Inflation is mild and we have extremely desirable mortgage rates."
Although consumers' feelings about the economy improved over the month of May, they aren't as buoyant as they were a year ago, when the index clocked in at 91.3. The confidence index is benchmarked to a 100 reading on January 2002, when Ipsos started the gauge.
Economists keep tabs on confidence for clues about consumers' willingness to spend. Consumer spending accounts for two-thirds of all economic activity in the United States.
A measure that tracks consumers' feelings about current economic conditions jumped to 100.8 in June, up from 83.2 in May.
And a gauge that tracks consumers' feelings about making a purchase, saving and other investment decisions also rose sharply to 93 in June, compared with a reading of 75.8 in May.
The pickup in both measures probably reflected an improvement in the stock market and the still relatively low interest rate environment, economists said.
Even though the Federal Reserve (search) has raised short-term interest rates eight times since June 2004, long-term interest rates, such as those for 30-year mortgages and for other loans, have gone down. That's puzzling Fed Chairman Alan Greenspan (search).
Low mortgage rates continue to fuel a housing boom. Rates on 30-year mortgages this week dropped to 5.56 percent, the lowest since the spring of 2004.
Rising home prices may make homeowners feel more wealthy and better about their financial position, economists said. "People are relying more and more on their homes to maintain spending and provide a cushion," said John Shin, senior economist at Lehman Brothers.
Consumers' feeling about jobs, meanwhile, came in at 119.6 in June, up slightly from 118.1 the month before.
An employment report released by the government last week offered a mixed picture of the hiring climate. The jobless rate fell to 5.1 percent in May, the lowest since September 2001, while payrolls grew by just 78,000, the most sluggish pace in nearly two years.
A measure of consumers' attitudes about economic expectations over the next six months fell to 37.2 in June, compared with 48.1 in May.
June's overall consumer confidence index was based on the results of a survey of 1,001 adults about their attitudes on personal finances and the economy. Results of that survey, conducted Monday through Wednesday, had a margin of error of plus or minus 3 percentage points.
The CASH index, short for Consumer Attitudes and Spending by Household, was conducted for the Royal Bank of Canada.