Consumers are feeling increasingly confident about the current state of the US economy and what's coming in the near future.
The Conference Board's Consumer Confidence Index for July hit a reading of 117, the highest level in two years, according to new data released Tuesday morning. Economists surveyed by Bloomberg had expected a reading of 112.
The Expectations Index, which measures consumers' short-term outlook for income, business, and labor market conditions, increased to 88.3 in July from 80 in June. Historically, a reading below 80 in that category signals a recession in the coming year.
"Assessments of the present situation rose in July on brighter views of employment conditions, where the spread between consumers saying jobs are 'plentiful' versus 'hard to get' widened further," the Conference Board's chief economist Dana Peterson said in the release. "This likely reflects upbeat feelings about a labor market that continues to outperform."
Tuesday's upbeat reading of the US economy is the latest in a slew of puzzle pieces that present a more resilient picture of the US economy than many expected more than halfway through 2023. Less than two weeks ago another closely followed reading of consumer opinion, the University of Michigan Consumer Sentiment Index, increased at its quickest monthly pace since the US economy was rebounding from Hurricane Katrina in 2005.
"The sharp rise in sentiment was largely attributable to the continued slowdown in inflation along with stability in labor markets," Surveys of Consumers director Joanne Hsu said in that release.
June's Consumer Price Index and retail sales for the month signal that consumers are still spending more than they did a month ago as price increases fell to their lowest level in more than two years.
Those reports followed a June jobs report that showed unemployment remaining at a historically low levels while the US economy added 209,000 jobs and annual hourly wages grew 4.4%.
Just 9.7% of the respondents to the Conference Board's survey said jobs were "hard to get," lower than 12.6% in June.
The confluence of data has economists pushing back their recession calls. Goldman Sachs recently lowered its likelihood of a recession in the next 12 months to 20% from 25%.
"Incoming data now point to a more comfortable soft landing than we had anticipated," Morgan Stanley chief US economist Ellen Zentner wrote in a note last week that included the firm more than doubling its projection for fourth quarter gross domestic product to 1.3%.
Elsewhere in the Conference Board's release, 31.6% of consumers said their current family financial situation is "good," an increase from 28.8% in June. Meanwhile, 17.6% described their current family finances as "bad," a decline from June's 18.6%.
Still, Tuesday's print won't have Oxford Economics chief US economist Ryan Sweet adjusting his forecast for consumer spending because historically the "relationship is weak" between confidence and how much consumers actually spend. But it does have Sweet reconsidering his recession forecast.
"However, the better-than-expected increase in the Conference Board’s measure of consumer sentiment does reduce our subjective odds of a recession occurring in Q4," Sweet wrote. "Historically, confidence reflects where we are in the business cycle."
The read on what higher consumer confidence levels mean for the Federal Reserve is mixed, according to Wall Street analysts. The central bank has been hiking interest rates to combat inflation but risks sending the economy into a recession in the process. Its next interest rate decision is this Wednesday.
On the one hand, higher consumer confidence could indicate the perfect situation for a soft landing where inflation continues falling but the tight labor market described in Tuesday's survey doesn't deteriorate, Wells Fargo senior economist Tim Quinlan argued in a note on Tuesday.
But consumer confidence can also be seen as a headwind for Chair Jerome Powell and the Federal Reserve if resilient consumer spending keeps inflation from falling to the Fed's 2% target.
"The data today continue to show that the Fed's job is very tough," Jefferies US economist Thomas Simons wrote Tuesday. He added, "There are storm clouds on the horizon, but until the consumer sees a material decline in labor market conditions it seems that they are going to remain optimistic."
Josh Schafer is a reporter for Yahoo Finance.
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