Consumer confidence spiked in July.

The Conference Board’s index of consumer confidence jumped to 90.9 from 85.2 in June.

This smashed expectations for an increase to just 85.4.

“Consumer confidence increased for the third consecutive month and is now at its highest level since October 2007 (95.2),” said the Conference Board’s Lynn Franco.

“Strong job growth helped boost consumers’ assessment of current conditions, while brighter short-term outlooks for the economy and jobs, and to a lesser extent personal income, drove the gain in expectations. Recent improvements in consumer confidence, in particular expectations, suggest the recent strengthening in growth is likely to continue into the second half of this year.”

Here’s some more colour regarding consumers’ assessment of current conditions and expectations from the Conference Board:

Consumers’ assessment of current conditions improved in July. Those claiming business conditions are “good” edged down to 22.7 per cent from 23.4 per cent, while those stating business conditions are “bad” was virtually unchanged at 22.7 per cent. Consumers’ appraisal of the job market was more favourable. Those saying jobs are “plentiful” increased to 15.9 per cent from 14.6 per cent, while those claiming jobs are “hard to get” remained unchanged at 30.7 per cent.

Consumers’ expectations were more optimistic in July. The percentage of consumers expecting business conditions to improve over the next six months increased to 20.2 per cent from 18.4 per cent, while those expecting business conditions to worsen held steady at 11.5 per cent. Consumers were more positive about the outlook for the labour market. Those anticipating more jobs in the months ahead increased to 19.1 per cent from 16.3 per cent, while those anticipating fewer jobs declined to 16.4 per cent from 18.4 per cent. Slightly more consumers expect their incomes to grow, 17.3 per cent in July versus 16.7 per cent in June, while those expecting a drop in their incomes declined to 11.0 per cent from 11.4 per cent.

All of this is in line with economists’ expectation for a spring/summer snapback in economic activity since the chilly winter.

“Layoffs are falling and bank lending is accelerating — two powerful statistical indicators of the economy’s building momentum heading into H2 14,” said UBS’s Maury Harris, who sees “three-handled” real GDP growth from now through 2015. “The major expected behavioural drivers continue to be pent-up demand and lagged positive credit impacts from earlier QE. From the Fed’s perspective, housing is a downside risk, although we believe recently tepid mortgage applications and new home sales should pick up with better job creation and related household formation.”

Meanwhile, the stock market is extending its low volatility rally. Currently trading at around 1,985, the S&P 500 isn’t far from it’s all-time intraday high of 1,991.

“Global growth is improving mildly, lowflation is here to stay, central banks remain accommodative, equity markets and the US dollar are grinding higher, and bond yields are going nowhere for now,” said Morgan Stanley’s Joachim Fels.

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