Economic News, Smart Spending

Consumer Confidence Falls After Reaching Five-Year High

Declining from a five year high, consumer confidence decreased to 80.3 in July. Further analysis shows that June’s reading was actually stronger than originally reported and revised up to 82.1. The bulk of the decline occurred because of a let-down in expectation about economic and employment conditions over the next six months, according to a Conference Board spokesperson.

Despite the drop, the consumer confidence level remains well above the readings recorded in July 2012.

Bloomberg survey of economists reported consumer confidence estimates that range from 77 to 88.5. During the last recession, from December 2007 to June 2009, the indicator averaged a reading of 53.7.

Six-month expectations

The Consumer Confidence Index (CCI) measures consumers’ expectations—as optimistic or pessimistic—as it relates to their near-term outlook. Typically, when consumers are optimistic about the economy they will buy more goods and services. Increase consumer spending will fuel economic growth.

Here are additional data from the survey:

  • Overall financial expectations for the next six month – decreased to 84.7 from 91.1
  • State of present conditions – increased to 73.6 from 68.7
  • Expects more jobs to become available in next six months – decreased to 16.5 percent  from 19.7 percent
  • Anticipates incomes to increase – decreased to 15.3 percent from 15.9 percent
  • Believes that jobs are currently  plentiful –  increased to 12.2 percent  from 11.3 percent

The percentage of people who categorized business conditions declined from to 24.5 percent from 24.9 percent. The number of respondents who claim that jobs are “hard to get” fell to 35.5 percent from 37.1 percent. Fewer people expect their incomes to decrease. This measurement fell from 13.8 percent from 14.2 percent.

In addition, more Americans plan to buy homes, cars and appliances in the next six months.

Mixed factors affecting confidence

In July, consumers faced higher prices at the gas pump and upward trending home mortgage interest rates. The index reflected consumers concern that these events may slow down the housing market recovery.  Simultaneously, these concerns may have been somewhat tempered by the “wealth affect” realized from home equity gains and stock portfolio appreciations.

The increase wealth, and in turn consumer spending, has been instrumental in helping keep the U.S. economy afloat. Consumer spending makes up 70 percent of the U.S. economy.

Ryan Wang, an economist at HSBC Securities USA Inc. (New York) predicted a decrease in the confidence index. He point to home price appreciation and an “improved labor market as “key positives.”  According to Wang, “recent volatility in financial markets may have weighed on consumer expectations.”

Other sentiment data
Positive consumer expectations about the economy have been the theme for other sentiment surveys. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 85.1 from 84.1 in June and its highest level since July 2007.  For the week ended July 21, Bloomberg’s Consumer Comfort (COMFCOMF) Index climbed to its highest level in five years.