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Economy in Brief

U.S. Consumer Confidence Drops to the Lowest Level since Feb. '21
by Winnie Tapasanun  July 26, 2022

• Down 2.7 pts. to 95.7; lower than expected; third consecutive m/m decline.

• Present Situation Index at 141.3, lowest since Apr. '21, signaling economic growth has slowed in Q3 '22.

• Expectations Index at 65.3, lowest since Mar. '13, increasing recession risks.

• Present labor market less optimistic; employment expectations down slightly.

• Inflation expectations only down marginally; inflation and additional Fed rate increases possibly suppress consumer spending and economic growth in the near term.

The Conference Board U.S. Consumer Confidence Index fell 2.7% (-23.5% y/y) to 95.7 in July after a 4.7% drop to 98.4 in June (-4.4%; 98.7 initially). The July reading was the third straight m/m fall to the lowest level since February 2021 and well below 125.1 in July 2021. A reading of 96.9 had been expected in the Action Economics Forecast Survey.

Consumers' views of present and future economic conditions deteriorated further this month. The Present Situation Index fell 4.0% (-10.1% y/y) to 141.3 in July, the sixth m/m fall in seven months to the lowest level since April 2021, after a 0.1% downtick to 147.2 in June. The index was below 157.2 last July. The Expectations Index slid 0.8% (-37.1% y/y) to 65.3 this month, the sixth monthly slide in seven months to the lowest level since March 2013, after a 10.7% decrease to 65.8 in June. It was down 41.6% since the recent peak of 111.9 in March 2021 and well below 103.8 in July 2021.

Labor market readings showed less optimism this month. The jobs gap, representing the difference between respondents indicating that jobs are plentiful and those saying jobs are hard to get, fell back to 37.8% in July, the third monthly fall in four months to the lowest reading since May 2021, from 39.9% in June. It was below the record 47.1% in March and 44.1% last July. Calculated by Haver Analytics, this series has had a 68% correlation with the unemployment rate over the last ten years. The jobs plentiful measure eased to 50.1% this month, the sixth m/m decline in seven months to the lowest reading since May 2021, from 51.5% in June. It was below the record 56.7% in March and 55.2% last July. The jobs hard-to-get measure increased to 12.3% of respondents in July from 11.6% in June. It was up from an expansion low of 9.6% in March and 11.1% last July.

Consumers viewed business conditions as less favorable. Current business conditions were perceived as good by a lessened 17.0% of respondents in July, down from 19.5% in June and 24.6 last July. Expectations that business conditions would improve in six months dropped to 14.0% of respondents, down from 14.6% in June and a 42.5% high in May 2020. More jobs were expected in six months by a lessened 15.7% of respondents, down from 15.9% in June and a 41.2% high in April 2020. The percentage expecting rising income weakened to 14.7% of respondents in July, down from 16.1% in June and 20.0% last July.

Inflation expectations eased this month but remained at a high level. The expected inflation rate in twelve months declined slightly to 7.6% in July after rising to 7.9% in June (the series dates back to August 1987). The July reading was up from a 4.4% low in January 2020 and 6.6% last July. An increased 70.7% of respondents expected that interest rates would rise over the next twelve months, the highest reading since November 2018 and up marginally from 70.6% in June.

The share of respondents planning to buy a home within six months fell to 4.4% in July, the lowest reading since August 2015, from 5.7% in June. It was below a 7.7% high in July 2020 and 6.4% last July. Those planning to buy a major appliance declined to 39.4% of respondents in July from 45.4% in June, registering the lowest reading since July 1993 and well below a 53.9% high last July.

The Consumer Confidence data are available in Haver's CBDB database. The total indexes, which are indexed to 1985=100, appear in USECON, and market expectations are in AS1REPNA.

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