Inflationary fears continue to dampen consumer expectations

The Conference Board’s consumer confidence index fell again in June, the second consecutive fall and the seventh in the past twelve months. The composite index fell 4.5 points, or 4.4 percent, to 98.7, its lowest level since February 2021 (see top of chart one). Compared to last year, the index decreased by 23.4 percent. The decline was concentrated in consumer expectations for the future.

The expectations component fell 7.3 points, or 9.9 percent, to 66.4 (see the middle of the first chart), while the current situation component, one of AIER’s approximate match indicators, fell only 0.3 points to 147.1 (see the bottom of the first graph). The expectations index decreased by 38.8 percent compared to last year and is at its lowest level since March 2013. The index is below readings just before the start of three of the last four recessions.

In the index of expectations, all three components decreased compared to May. The higher income expectation index fell 2.0 points to 15.9, while the lower income expectation index rose 0.7 points, bringing net (higher expected income – lower expected income) down 2. .7 points to 0.7.

The Expectations for Better Business Conditions Index fell 1.7 points to 14.7, while the Expected Worsening Index rose 3.1 points, leaving the net (Expected Better Business Conditions – Expected Worsening Business Conditions) fell 4.8 points to -14.8.

The labor market outlook deteriorated in June as the job growth expectation index fell 1.2 points to 16.3, while the job loss expectation index rose 2.5 points to 22.0, leaving net the index fell by 3.7 points to -5.7.

For the current situation, the index components, current business conditions and employment conditions have weakened somewhat. The net value of current business conditions (current business conditions good – current business conditions bad) was -3.4 in June compared to -1.9 in May. The current labor market outlook showed that the Hard to Get Jobs Index fell 0.8 points to 11.6, while the Job Abundance Index fell 0.6 points to a still strong 51.3, which resulted in a 0.2 point increase in net terms to 39.7. A net reading above 40 is considered strong historically.

Inflation expectations rose to 8.0% in June, a record high; expectations were 4.4 percent in January 2020 (see second chart). The spike in expected inflation from the Conference Board poll is consistent with the University of Michigan poll, although the numbers differ (see second graph). Inflationary expectations remain extremely high as the prices of many goods and services continue to rise at an accelerated pace. The extreme inflation outlook is a key factor in weakening consumer expectations.

Rising prices for many consumer goods and services are largely a consequence of material shortages, a tight labor market and logistical problems that prevent supply from meeting the surge in demand from the post-lockdown recession, although significant progress has been made in increasing production. . The pressure on prices was exacerbated by rising energy prices as a result of the Russian invasion of Ukraine and periodic lockdowns in China. In addition, an intensifying Fed tightening cycle raises the risk of policy error and raises the level of risk and uncertainty in the overall economic outlook.

Robert Hughes

Bob Hughes

Robert Hughes joined AIER in 2013 after over 25 years of economic and financial market research on Wall Street. Bob previously led the Global Equity Strategy division of Brown Brothers Harriman, where he developed an equity investment strategy that combines top-down macro analysis with bottom-up fundamentals.

Prior to joining BBH, Bob was Senior Equity Strategist at State Street Global Markets, Senior Economic Strategist at Prudential Equity Group, and Senior Economist and Financial Markets Analyst at Citicorp Investment Services. Bob holds an MA in Economics from Fordham University and a BA in Business from Lehigh University.

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