Consumer confidence continued to decline in July

The Conference Board’s consumer confidence index fell again in July, the third straight fall and the eighth in the past thirteen months. The composite index fell 2.7 points, or 2.7 percent, to 95.7, its lowest level since February 2021 (see first chart). Compared to last year, the index decreased by 23.5 percent. Both components declined in July.

The expectations component fell 0.5 points, or 0.8 percent, to 65.3 (see chart 1), while the current situation component, one of AIER’s approximate matching indicators, fell 5.9 points to 141. 3 (see first graph). The expectations index decreased by 37.1 percent compared to last year and is at its lowest level since March 2013. The index is below readings just before the start of all but one of the last eight recessions.

In the expectations index, only one of the three components fell compared to June. The higher income expectation index fell 1.4 points to 14.7, while the lower income expectation index rose 0.4 points, bringing the net measure (higher expected income – lower expected income) down by 1.8 points to -1.0.

The Expectations for Better Business Conditions Index fell 0.6 points to 14.0, while the Expected Worsening Index fell 2.5 points, leaving the net (Expected Better Business Conditions – Expected Worsening Business Conditions) rose by 1.9 points, but still at -13.2.

The labor market outlook improved marginally in July, as the job growth expectations index fell 0.2 points to 15.7, while the job loss expectations index fell 0.8 points to 21.4, as a result leaving the net index up 0.6 points to -5.7. At present, the situation index components, current business conditions and employment conditions have weakened. The net measure of current business conditions (current business conditions good – current business conditions bad) was -7.0 in July, compared to -3.3 in June. The current job market outlook showed that the Hard to Get Jobs Index rose 0.7 points to 12.3, while the Job Abundance Index fell 1.4 points to a still strong 50.1. , which led to a drop in the net indicator by 2.1 points to 37.8.

Inflation expectations fell to 7.6% in July from 7.9% in June; expectations were 4.4 percent in January 2020 (see second chart). The spike in expected inflation in the Conference Board poll is consistent with the University of Michigan poll, although the numbers differ (see second chart). Inflationary expectations remain extremely high as the prices of many goods and services continue to rise at an accelerated pace. The extreme inflation forecast is a key factor in weakening consumer expectations. According to the report, “The decline was driven primarily by a decline in the Current Situation Index — a landmark slowdown in growth early in the third quarter. The Expectations Index remained relatively stable, but remained well below 80, indicating continued recession risks. Concerns about inflation – in particular rising gas and food prices – continued to weigh on consumers.”

Rising prices for many consumer goods and services are largely a consequence of material shortages, a tight labor market, and logistical problems preventing supplies from meeting the post-lockdown post-recession surge in demand, although significant progress has been made in boosting 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 missteps 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 macro downside analysis with upside 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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