Lower gas prices push consumer confidence to highest level since May

By Martha C. White for CNN Business

Lower gas prices helped consumer confidence bounce back in August, breaking a three-month stretch of worsening sentiment. However this improvement, while welcome, is tempered by ongoing worries that the US economy may be heading toward a recession.

The Conference Board’s monthly snapshot of consumer attitudes improved, rising to 103.2 from July’s downwardly revised 95.3. The August number matches the level it reached in May and marks the first time since then that the headline index broke 100, the historical baseline metric.

The survey found that Americans are less pessimistic in both their current and future economic outlooks. The present situation index, which measures how people perceive current business and labor market conditions, jumped to 145.4 from 139.7 last month.

The expectations index rose to 75.1 from 65.6, reflecting a reversal from pessimism in consumers’ short-term outlook, which had hit a nine-year low in July.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, attributed the improvement to the fall in gas prices, which have slumped by more than a dollar a gallon from their mid-June peak to a current nationwide average of less than $4.

“Expectations are more sensitive to movements in gas prices,” Shepherdson said in a research note, adding that the continued slide in gas prices could be a tailwind for the survey results. “We expect a further increase in September as the lagged effect of the drop in gas prices kicks in.“

This suggests that Americans’ perceptions have a key role to play in the trajectory of the economy going forward.

Lynn Franco, senior director of economic indicators at the Conference Board noted that, although improved, the low reading on the expectations index suggested that the threat of a downturn continues to weigh on the economy.

“Recession risks continue. Concerns about inflation continued their retreat but remained elevated,” she said.

This is a developing story and will be updated.

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