The Conference Board’s measure of U.S. consumer confidence rose 1.6 points in October to 50.2 from an upwardly revised 48.6 level in September (previously 48.5). Market expectations were for a slightly smaller increase in the index to 49.9. Despite the overall increase in the index, the labour market differential (those saying jobs are “plentiful” minus respondents saying jobs are “hard to get”) deteriorated for a fourth consecutive month, slipping to –42.6 from the prior month’s –42.0 reading (previously–42.3).

The rise in consumer confidence in October reflected an improvement in both the “expectations” and the “present situation” components. The expectations component rose to 67.8 from 65.5 in September, led by an improvement in the outlook for business conditions, while the outlooks for employment and income were less pessimistic.  The present situation index rose for the first time since May, increasing to 23.9 from 23.3 in September because consumers’ appraisal of current business conditions improved.  Despite this improvement, the “jobs hard to get” index rose to 46.1 from 45.8 in September while the “jobs plentiful” index slipped to 3.5 from 3.8.  These numbers resulted in the employment differential slipping to -42.6 from the -42.0 reading posted in September.

While the overall increase in consumer confidence in October is encouraging, today’s report still indicates that consumers maintain a highly pessimistic view of the economy with the index “still hovering at historically low levels.” While we expect employment to continue to strengthen in coming months, the pace of growth will likely not be sufficient to generate significant improvements in the unemployment rate in the near term, and consumers’ less than optimistic view of employment prospects will weigh on consumption.  As a result, while we expect continued growth in consumer spending, the pace of improvement will likely remain relatively modest compared to previous periods of U.S. economic recovery. 

In a separate release this morning, August’s S&P/Case-Shiller 20-City Composite measure of U.S. house prices fell for the second consecutive month, dropping 0.3% on a seasonally adjusted basis from July. Market expectations were for a slightly smaller 0.2% monthly decline. On a year-over-year basis, the pace of growth in the unadjusted index moderated to 1.7% following the 3.2% gain in July, missing expectations for an increase of 2.1%. The reading represents the seventh consecutive gain on a year-over-year basis after more than three years of declines, although it was the slowest pace of annual growth since February.  The report noted that the housing market is stabilizing at new lows, but that “it does not seem that any of the markets are hanging on to the temporary momentum caused by the homebuyers’ tax credits” that expired at the end of April.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.