The overall mixed news flow on the economic front appears to be taking a toll on how consumers view their well being and prospects. A combination of factors seem to be at play here; the most important being the continued tepid pace of private sector job creations, which take center stage later this week with the June non-farm payrolls.
With temporary, census-related government hires expected to reverse course, offsetting decent though unspectacular private sector new jobs, the expected negative headline payroll number for June may not be much help to consumer confidence either.
3-Month Trend in Confidence Reverses
The Conference Board reported today that it’s closely-watched Consumer Confidence Index fell unexpectedly in June, reversing its rising trend of the preceding three months. The Index fell to 52.9 from 62.7 in May, while the expectation was for a reading of 62.8.
The Conference Board uses a sample of 5,000 U.S. households for its monthly survey. The key takeaway from the June survey was an overall souring of consumers’ appraisals of business conditions and the labor market. A greater percentage of the respondents termed business conditions as ‘bad’ compared to the prior month, and claimed jobs to be ‘hard to get’. This deterioration in sentiment was captured by the Index’s constituent components. The Present Situation Index dropped to 25.5 from 29.8 in May, while the Expectations Index declined to 71.2 from 84.6 in the previous month.
Fears about Recovery Take Center Stage
The recent turmoil in the equity markets and its wide Main Street coverage, along with the continued labor market woes, can not entirely be ignored in the downtrend in consumer confidence. Given the consumers’ centrality to the U.S. economy, today’s weak report is adding to concerns about the sustainability of the recovery. The flight from risky equities and stampede into treasury bonds has resulted in the 10-year bond dipping below the 3% level.
While the headwinds are real, with Europe hardly out of the woods yet and continuing questions about China’s growth momentum, they are unlikely to drag the U.S. economy into a double dip. The bargain basement yields on the treasury paper reflect their safe-haven status in an otherwise turbulent world — not a descent into another recession.
