Reopening Boosts Consumer Optimism, But COVID Dampens the Outlook – Robert Hughes (07/30/2020)

The Consumer Confidence Index from The Conference Board declined in July, falling 5.7 points to 92.6 leaving the index 31.8 percent below the year-ago level. The index is constructed so that it equals 100 in 1985 (see top chart). The main components of the index moved in opposite directions in July.

The present-situation component increased to 94.2 from 86.7, a 7.5-point gain though the July result is still 44.9 percent below July 2019. According to The Conference Board report, “Consumer Confidence declined in July following a large gain in June. The Present Situation Index improved, but the Expectations Index retreated. Large declines were experienced in Michigan, Florida, Texas and California, no doubt a result of the resurgence of COVID-19. Looking ahead, consumers have grown less optimistic about the short-term outlook for the economy and labor market and remain subdued about their financial prospects. Such uncertainty about the short-term future does not bode well for the recovery, nor for consumer spending.”

The expectations component lost 14.6 points to 91.5 from 106.1 in the prior month (see top chart). The Conference Board report also noted, “Consumers, however, were less optimistic about the short-term outlook. The percentage of consumers expecting business conditions will improve over the next six months declined from 42.4 percent to 31.6 percent, while those expecting business conditions will worsen increased from 15.2 percent to 19.3 percent. Consumers’ outlook for the labor market was also less favorable. The proportion expecting more jobs in the months ahead declined from 38.4 percent to 30.6 percent, while those anticipating fewer jobs in the months ahead increased from 14.4 percent to 20.3 percent.” The net percentage for jobs expectations (more jobs minus fewer jobs) came in at 10.3, down from 24.0 in June (see bottom chart). This compares to a rise of 4.1 points to 1.3 in the net present situation labor index (current jobs plentiful minus current jobs hard to get, see bottom chart).

Regarding their short-term income prospects, the percentage of consumers expecting an increase was relatively unchanged at 15.1 percent, while the proportion expecting a decrease rose from 14.1 percent to 15.0 percent.

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