US Consumer Confidence Down: A Minor Negative

In line with the University on Michigan Data released on Friday, the Conference Board’s Consumer Confidence index has declined in July. The index fell to 46.6 down from 49.3 in June. Both the Present Situation and the Expectations indexes contributed to the decline. As the graph (from http://www.conference-board.org/economics/ConsumerConfidence.cfm) shows, the index is still far above the depths it plunged to in February and March.

The index that focuses on how people feel about the economy right now declined to 23.4 from 25.0 in June, while the index that gauges their views about the next few quarters fell to 62.0 from 65.5 last month. The Present Situation index was hurt by the very poor labor market, with those saying jobs are hard to get increasing to 48.1% from 44.8% last month. Believe it or not, there are still a few folks that think that jobs are “plentiful” in this economy, although their numbers fell to 3.6% from 4.5% in June.

The Expectations index declined as fewer people expected improvement in the economy in coming months, rather than from an increase in the number expecting further deterioration in the economy. The percent of consumers anticipating an improvement in business conditions over the next six months decreased to 18.0 percent from 20.9 percent; however, those expecting conditions to worsen decreased to 18.9 percent from 20.4 percent.

It thus appears that the talk of “green shoots” in the spring was a bit premature, but people do not feel like we are about to fall off another cliff.  More like we will just be stuck in the mud for a long time. This was also true for the expectations about the job market, with both those expecting an improvement and those that expect more deterioration falling as a percentage of overall responses.

Expectations for further deterioration in the labor market still lead those that are looking for a turnaround in coming months by 11.3%, up from 10.1% in June. However, that happened as those looking for an improvement fell by more than those expecting further deterioration.

The proportion expecting things not to change rose by 3.8%. Only 9.5% of consumers, down from 10.1% are expecting their incomes to improve in coming months.

This will keep people from opening up their wallets. I suspect that many people will trade down from shopping at stores like J.C. Penney’s (JCP) and Macy’s (M) - or will do so only when those stores get very promotional (hurting gross margins) - and do more of their shopping at stores like Wal-Mart (WMT) and TJ Maxx/Marshalls (TJX).

While Consumer Confidence is one of the components of the leading economic indicators, historically it has been a coincident indicator of the stock market. It has not been a good idea to sell stocks because of a very low consumer confidence number, nor has it been a good idea to buy stocks because of a high or increasing consumer confidence number.

This was rather dramatically demonstrated in February and March. I would consider the decline in consumer confidence to be at most a minor negative.

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