The Conference Board, a New York-based private research group, said Tuesday that its consumer confidence index dipped to 80.3 in July. That's down from a reading of 82.1 in June, which was revised slightly higher and the best reading since January 2008.
Despite the slight drop in July, confidence remains well above year-ago levels. And consumers are more optimistic about the current job market.
"Overall, indications are that the economy is strengthening and may even gain some momentum in the months ahead," said Lynn Franco, an economist for the Conference Board that oversees the consumer confidence survey.
Amna Asaf, an economist at Capital Economics, blamed the July drop in confidence on rising gasoline prices. But she said the confidence index remains at a level that is consistent with stronger growth in consumer spending in the July-September quarter.
Consumers' confidence in the economy is watched closely because their spending accounts for about 70 per cent of U.S. economic activity.
The index surged in June, coinciding with a stronger job market. Employers added 195,000 jobs in June and many more in April and May than initially reported. That brought the monthly job growth up to an average of 202,000 in the first six months of 2013, up from 180,000 a month in the final six months of last year.
The government releases the July employment report on Friday. Economists forecast that employers added 183,000 jobs, and the unemployment rate fell to 7.5 per cent from 7.6 per cent in June.
A recovery in housing is also boosting confidence, and a separate report Tuesday offered more encouraging news on that front.
The Standard & Poor's/Case-Shiller 20-city home price index jumped 12.2 per cent in May compared with a year ago. That's the biggest annual gain since March 2006. The gains were widespread with all 20 cities reporting monthly and annual increases.
"One reason why consumers are more confident than they were a year ago continues to be the comeback in housing," said Jennifer Lee, senior economist at BMO Capital Markets.
Still, the Conference Board report showed consumers are still worried the economy remains vulnerable.
Their assessment of current economic conditions improved in July, as did their view of the job market. But their short-term outlook for the economy and job market weakened slightly in July, signalling some worries about the next few months.
The job market has shown surprising resilience in the face of tax increases, federal spending cuts and economic weakness overseas.
Stronger hiring is not being reflected in overall economic growth at the moment. The government will release its first look at economic growth in the April-June quarter on Wednesday. That report is expected to show growth slowed to an annual rate of 1 per cent or less, down from a subpar 1.8 per cent annual rate in the January-March quarter.
Economists are hopeful that the economy will rebound in the second half of the year as the adverse impact of the tax increases and spending cuts lessen. Many are forecasting a growth rate of around 2.5 per cent in the second half of the year.
Revisions to economic growth being released Wednesday could also show stronger growth at the start of the year.
Despite recent gains, consumer confidence remains below the 90 reading that indicates a healthy economy. That level hasn't been reached since the Great Recession began in December 2007.Suggest a correction