The Conference Board's index rose 7.5 points to 91.7, far above the 81 economists expected, and the group tied the rebound to cheaper gasoline. Durable goods orders also beat, but almost entirely on aircraft. The 10-year yield moved less than half a basis point.
American consumers felt a lot better in October. The question for the Federal Reserve, which began its two-day meeting on Tuesday, is whether they feel better for a reason that lasts.
The Conference Board said its consumer confidence index rose 7.5 points to 91.7 in October from an upwardly revised 84.2 in September. Economists had expected 81. The group said confidence had revived to June levels. September's reading had been the lowest since April 2014, according to the Associated Press.
What drove it
The gain was led by how people see the present. The present situation index rose 8.6 points to 120.4. The expectations index, which tracks the outlook for income, business and jobs over the next six months, rose 6.9 points to 72.6, which the Conference Board said "only partially" reversed three straight monthly declines.
The group was direct about the cause. "The recovery was in line with retail gasoline prices easing from September to October," said Fergus McCormick, a senior economist at the Conference Board. It added that confidence remained on its long-term downward trend.
The labor market read improved. The gap between consumers who said jobs were plentiful and those who said jobs were hard to get widened by 2.4 percentage points to 5.3.
What did not improve much
Inflation expectations eased but stayed high. Consumers' expectation for inflation over the next 12 months declined in October but "remained elevated at 5.8%," the Conference Board said, and consumers still expected interest rates to rise. The survey ran from Oct. 1 to Oct. 21.
That is the number a central bank that raised rates in September is likely to watch. Households that expect prices to keep rising quickly can push wage demands and spending decisions in the same direction.
Factories and houses
Orders for durable goods rose 1.8% in September to $345.4 billion, the Census Bureau said, ahead of the 1.4% median forecast compiled by Econoday. Most of the gain came from transportation equipment, which rose 4.6%, and within that from aircraft. Aircraft orders rose 23.2% and orders excluding aircraft just 0.1%, by Haver Analytics' tally. Shipments of core capital goods, a proxy for business investment, rose 1.2%.
Housing went the other way. New home sales were 676,000 at an annual rate in September, little changed from August, a 0.6% dip that is within the survey's margin of error, and down 5.3% from a year earlier. The median price was $400,400. Mortgage rates remain above 7%.
The market's shrug
The 10-year Treasury yield was 4.991% at about 1:47 p.m. Eastern, up 0.4 basis point. The five-year yield was 4.833% at 1:32 p.m. The dollar index rose 0.3% to 102.12. A beat of nearly 11 points on confidence did not change the rate outlook much, which is itself telling: a CNBC survey published Tuesday found 93% of respondents expect the Fed to hold on Wednesday and 76% expect a hike in December.
The gasoline link is moving in the same direction. West Texas Intermediate crude was down 1.9% at $99.82 a barrel, back below $100, and gasoline futures were down 2.1%.
Two readings
One reading is that demand is strong enough to justify the December hike markets expect. Confidence is back to June levels, the jobs gap widened, consumers expect 5.8% inflation and higher rates, and core capital goods shipments rose.
The other is that this is a gasoline echo inside a downtrend. The Conference Board itself credited fuel prices and said the long-term trend is still down, expectations remain weak at 72.6, orders outside aircraft barely grew, and new home sales are lower than a year ago. If cheaper gasoline is doing the work, the improvement depends on oil.
What to watch
The Fed's decision and press conference on Wednesday, third-quarter GDP and September consumer spending and price data on Thursday, the employment cost index on Friday, and whether gasoline keeps falling.