Consumer Confidence Falls for a Third Straight Month in July

Written by David Schollaert

US consumer confidence fell again in July, declining for the third consecutive month, The Conference Board reported.

Americans grew even more pessimistic about the US economy over the past 30 days, with the latest survey showing declines in consumer attitudes, intentions and expectations in July. The drop came on the heels of an even larger downward revision to June’s reading.

“Consumer confidence fell for a third consecutive month in July,” said Lynn Franco, senior director of economic indicators at The Conference Board. “The decrease was driven primarily by a decline in the Present Situation Index—a sign growth has slowed at the start of Q3. The Expectations Index held relatively steady, but remained well below a reading of 80, suggesting recession risks persist. Concerns about inflation—rising gas and food prices, in particular—continued to weigh on consumers.”

The headline index ticked down by 2.7 points in July to a reading of 95.7. June’s revised reading of 98.4, was adjusted downward by 0.3 points. July is the lowest index reading since February 2021, when levels were 95.2. July’s number remains considerably above deeply pessimistic readings during the Great Recession, though, when the index fell as low as 25.3.

The repeated declines have been driven by consumers souring on the state of current business conditions. The index that tracks assessments of current business and labor conditions tumbled to 141.3 from 147.2, according to the report.

It’s a sign that growth has slowed during the third quarter, Franco said.

Consumers’ expectations for the next six months held relatively steady, but they remain at a level that suggests recession risks persist, she noted. Inflation continues to weigh heavily on consumer outlook.

“As the Fed raises interest rates to rein in inflation, purchasing intentions for cars, homes, and major appliances all pulled back further in July,” said Franco. “Looking ahead, inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months.”

Calculated as a three-month moving average (3MMA) to smooth out volatility, The Conference Board’s Composite Index was 99.1 in July versus 103.4 in June. The figure has declined for a seventh straight month and has fallen further from a pre-pandemic high of 130.4 in February 2020.

The Composite Index is made up of two sub-indexes: consumers’ view of the present situation and their expectations for the future. Figure 1 below notes the 3MMA linear trend lines from January 2012 through July 2022 versus the trend lines of all three subcomponents of the index: Present Situation, Composite, and Future Expectations. All three were above the average composite line prior to the pandemic before falling consecutively through February 2021. The surge from March through June of 2021 pulled all three indexes above the composite line once again. But economic uncertainty has since really eroded confidence.

ConConf Figure1

The table below compares July 2022 with July 2021 on a 3MMA basis. The headline index and its two sub-indexes are all declining on a year-on-year (YoY) basis. Present Situation has seen the less aggressive fall, while Expectations is showing the most volatility over the same period. All three indexes are also showing declining momentum through July.

When compared to the same 2019 pre-pandemic period, the Composite index is down 31.4 points on a 3MMA basis. The Present Situation is down 23.3 points, while the Expectations reading is down 36.7 points in July when compared to the same period in 2019. The consumer confidence report includes employment data and purchase plans. These are summarized in the table below.

ConConf Tabel1

People found jobs less plentiful in July and were a less optimistic about wage increases compared to the month prior. The differential between those finding jobs and those having difficulty was 37.8 in July, down from 39.9 in June. The measure, despite recent fluctuation, is just marginally below the most recent pre-pandemic high but below 44.1 a year ago. The difference between those expecting wages to rise versus those expecting wages to fall is -1.0, down 1.8 points MoM, and down from the recent high of 11.6 last June.

Buying intentions for big-ticket items – cars, homes, and major appliances – were all down in July, the report said. Rising costs remain the top concern for consumers, a position that is likely to continue, as the Fed is expected to raise its benchmark rate by another 75 basis points on Wednesday at the close of its policymaking meeting.

Since March, the Fed has raised its target federal funds rate three times, for a total of 1.5 percentage points.

Home buying saw the largest percentage decline in July, down 22.8%, followed by major appliances (-13.4%), and autos (-11.3%). These recent dynamics and historical movements are illustrated below in Figure 2.

ConConf Figure2

Note: The Conference Board is a global, independent business membership and research association working in the public interest. The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen. The index is based on 1985 = 100. The composite value of consumer confidence combines the view of the present situation and of expectations for the next six months.

By David Schollaert,

David Schollaert

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