The Conference Board said Tuesday that its consumer confidence index increased to 65.9, from 62.7 in June, the first increase in five months. That's the highest reading since April and better than the reading of 62 that economists had forecast.
"Consumers had a much improved view of job prospects, not immediately, but six months from now," said John Lonski, chief economist at Moody's Capital. "They're extrapolating from the dip in energy prices and recent firming of equity prices."
Still, the index remains well below 90, which indicates a healthy economy. It hasn't been near that level since the Great Recession began in December 2007. The index fell to an all-time low of 25.3 in February 2009 — four months before the recession officially ended.
Consumer confidence is widely watched because consumer spending drives 70 per cent of U.S. economic activity. A separate Commerce Department report Tuesday showed Americans spent no more in June than May, even though their income grew by 0.5 per cent.
The consumer confidence report is based on a poll conducted from July 1 through July 19 of about 500 randomly selected people nationwide.
Lynn Franco, director of economic indicators at The Conference Board, said consumers attitudes toward current conditions were little changed in July, and the overall index remains at historically low levels.
"While consumers expressed greater optimism about short-term business and employment prospects, they have grown more pessimistic about their earnings," she said in a statement. "Given the current environment — in particular the weak labour market — consumer confidence is not likely to gain any significant momentum in the coming months."
The amount of consumers expecting business conditions to improve over the next six months rose slightly, according to the survey. Those expecting more jobs in the months ahead increased as well. But fewer people in July expected that their incomes would increase.
"People are not only fearful of losing their jobs; they think that if you do lose your job, your next position may indeed be at a lower salary," said Lonski.
Consumer confidence has fluctuated over the past year. It rose during the first quarter and then retreated over the past four months.
"We believe consumer confidence will remain choppy until we have a resolution of the situation in Europe, or better yet, until the November elections," Lonski said.
The economy grew at a sluggish 1.5 per cent annual pace from April through June, slower than the 2 per cent rate in the first quarter. A key reason for the slowdown was weak consumer spending.
Economists generally say even 2 per cent annual growth would add only about 90,000 jobs a month. That's too few to drive down the unemployment rate, which is stuck at 8.2 per cent. That is expected to remain unchanged when the Labor Department releases its July jobs report on Friday.
But on a bright note for consumers, housing prices are rising, indicating a modest recovery in the housing market. The Standard & Poor's/Case-Shiller home price index released Tuesday showed increases in all of the 20 cities tracked from April to May. And a measure of national prices rose 2.2 per cent from April to May, the second increase after seven months of flat or declining readings.
Gas prices have receded from highs. Retail gasoline prices were flat over the weekend at $3.49 per gallon, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is about 45 cents cheaper than its peak price in April. It's also 22.4 cents cheaper than it was a year ago.
The report also included some promising news about future spending: More people said they plan to buy a car in the next six months.
"The story the consumer is telling us now is 'I think I can live with this, and I think I'll go buy a car," said Mike Moriarty, a partner in the retail practice of A.T. Kearney, a global management consulting firm.
Another snapshot of American's willingness to spend will be revealed on Thursday, when major retailers report July revenue in stores open at least one year. Analysts expect the measure, considered a key gauge of a retailer's financial health because it excludes volatility from stores that open or close during the year, edged up 1.5 per cent during the month.