Economy Watch: Consumers Feeling Better; More Americans Traveling for 4th of July

Consumer sentiment index edged up to 82.5 at the end of June. AAA is predicting that 41 million Americans will take a trip of more than 50 miles from home during the Independence Day holiday weekend, an increase compared to last year.

The University of Michigan reported on Friday that its consumer sentiment index edged up to 82.5 at the end of June, compared with a mid-June reading of 81.2 and an end-of-May reading of 81.9. Consumers were particularly optimistic about current conditions, with that component spiking to 96.6 compared with the end-of-May reading of 81.9. The expectations component didn’t move from 73.5.

On the whole, consumer sentiment has been fairly strong this year, despite a less-than-stellar economy in the depth of winter. Even at its weakest level early in the year, the University of Michigan’s consumer sentiment index hasn’t dropped below 80 yet during 2014. During the summer of 2011, when Congress seemed to threaten default, sentiment dropped to recession levels of below 60, but it hasn’t been that low since.

According to the university, consumer sentiment is mainly affected by inflation and employment conditions, but current events are also a factor. Investors pay attention to consumer sentiment because it tends to affect on consumer spending, at least over the long run. The survey questions 500 households each month on their financial conditions and attitudes about the economy.

More Americans Traveling for Independence Day this Year

AAA is predicting that 41 million Americans will take a trip of more than 50 miles from during the Independence Day holiday weekend (July 2 to July 6 this year), an increase of 1.9 percent compared with 2013. The estimate is also 14 percent more than traveled over the Memorial Day weekend.

The majority of travelers will be on a road trip, with more than eight in 10 (34.8 million) choosing to travel by car, the highest level since 2007, according to the organization. Travel volume for Independence Day has grown four out of the past five years and is expected to be more than 6 percent higher than the average of the past 10 years.

The AAA also notes that a willingness to take on credit card debt — not an increase in income — is responsible for rising consumer spending on holiday travel. A possible increase in gas prices leading up to the holiday weekend typically means consumers will allocate more of their budget towards travel expenses and cut back in other areas, not a curtailment of travel. The current national average price for a gallon of gas is $3.68, compared to $3.48 on July 4, 2013.

Wall Street finished the week on Friday with a mildly positive trading day. The Dow Jones Industrial Average gained 6.71 points, or 0.03 percent. The S&P 500 was up 0.19 percent and the Nasdaq advanced 0.43 percent.