After sluggish spending in recent months, consumers now appear to be optimistic as we enter into the second half of the year. This is especially true as consumer sentiment recovered to near record levels in July after falling for two consecutive months. The Consumer Confidence Index, as indicated by the Conference Board, surged to a 16-year high of 121.1 from the revised 117.3 in June and is much above the expected 116.5.
The upbeat data underscores the economy’s strong fundamentals and consumers’ enthusiasm to spend more. These will likely boost spending in the coming months and keep the Fed on track to increase rates for the third time this year. Notably, consumer spending accounts for more than two-thirds of U.S. economic activity.
With unemployment near a 16-year low and U.S. stocks at record highs, increase in consumer confidence will accelerate growth in the economy going forward despite Trump’s chaos. Last month, the Commerce Department in its final assessment, figured out that U.S. economy expanded at an annual rate of 1.4% in the first quarter instead of 1.2% recorded in the second reading. The upward revision was the result of strength in consumer spending, which rose 1.1% in the first quarter. Though it was the weakest reading since the second quarter of 2013, spending doubled from 0.6% reported in the second.
Rising consumer confidence will no doubt increase spending power and is thus expected to have a positive impact on the consumer discretionary sector, which attracts a major portion of consumer spending. As such, investors could tap the encouraging trend in the basket form through consumer discretionary ETFs.