Fleet Management

Economic Watch: Consumer Confidence Falls, Service Sector Rebounds Strongly

February 24, 2015

By Evan Lockridge

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Photo: Revisorweb via Wikimedia Commons
Photo: Revisorweb via Wikimedia Commons

Consumer confidence fell this month from a more than seven-year high last month, according to a new report from the private research group The Conference Board.

Its Consumer Confidence Index now stands at 96.4, down from 103.8 in January. The Present Situation Index decreased to 110.2 from 113.9, while the Expectations Index declined to 87.2 from 97 in January.

Lynn Franco, director of economic indicators at The Conference Board said despite the decline the index still remains at pre-recession levels. “While the number of consumers expecting conditions to deteriorate was virtually unchanged, fewer consumers expect conditions to improve, prompting a less upbeat outlook. Despite this month’s decline, consumers remain confident that the economy will continue to expand at the current pace in the months ahead.”

Consumers’ appraisal of current conditions was moderately less favorable in February than in January. Those saying business conditions are “good” decreased from 28.2% to 26%, however those claiming business conditions are “bad” decreased from 17.3% to 17%.

Consumers were also somewhat less positive in their assessment of the job market, with the proportion stating jobs are “plentiful” decreasing slightly from 20.7% to 20.5%, and those claiming jobs are “hard to get” increasing from 24.6% to 26.2%.

Consumers’ optimism about the short-term outlook was considerably less positive in February. Those expecting business conditions to improve over the next six months decreased from 18.9% to 16.1%, while those expecting business conditions to worsen increased from 8.2% to 8.7%.

Consumers’ outlook for the labor market was also less optimistic. Those anticipating more jobs in the months ahead decreased from 17.3% to 13.4%. However, those anticipating fewer jobs declined from 14.8% to 14.3%. The proportion of consumers expecting growth in their incomes declined from 19.5% to 15.1%. The proportion expecting a decrease rose from 10.8% to 12%.

Non-Manufacturing Activity Increases

Meantime, a separate, preliminary report, also released Tuesday morning, shows business activity in the U.S. service sector this month rebounded from January and hit its best pace since October.

The financial information services provider Markit and its Flash U.S. Services Purchasing Managers’ Index increased to 57 in February from 54.2 in January. This latest reading was also broadly in line with the average seen during 2014 as a whole at 57.1.

A reading above 50 indicates expending economic activity within the sector.

Higher levels of service sector business activity were driven by a strong rebound in new work in February, according to the report. Growth of new business picked up from January’s survey-record low and was the sharpest for four months. Reports from survey respondents suggested that improving underlying economic conditions had boosted client demand in February.

According to Markit, while some firms noted disruptions as a result of adverse weather conditions in the Northeast, there were also reports from companies based on the West Coast that unusually mild weather had supported new business gains during the latest survey period.

“Stronger growth of service sector activity in February puts a June Federal Reserve [interest] rate rise firmly back on the table,” said Chris Williamson, chief economist at Markit. “While parts of the East coast have struggled in the face of adverse weather, other regions basked in unusually warm temperatures, boosting business above seasonal norms. Activity levels surged higher and inflows of new business boomed as a result.”

He said when this report is put alongside the upturn shown in Markit’s Flash Manufacturing PMI survey for this month, issued last week, the improved performance of the service sector in February means the economy looks to be enjoying yet another spell of robust growth in the first quarter.

“The two PMI surveys are so far running at a level consistent with at least 3% annualized GDP growth,” Williamson said. “While the overall rate of business expansion has cooled from the surging pace seen in the middle of last year, growth remains buoyant and, importantly, strong enough to drive yet another month of impressive job creation.”

He said the Federal Reserve will no doubt be encouraged by the resilience of the economy in the face of global headwinds such as the Greek and Russian crises, and increasingly minded to start the process of normalizing monetary policy in June on the basis of these “impressive survey results.”

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