Last month I wrote about the collapse in consumer confidence and its link to the economy. "Unfortunately, despite the recent evidence that the consumer was out in force spending from savings rather than income, the plunge in consumer confidence is rather concerning. Particularly at a time when Americans are growing increasingly worried about a weak job market, higher costs for food and clothing and recent stock market turmoil, the falling confidence numbers raise new concerns about their willingness to spend which is vital to economic recovery. As we have shown in past missives consumer spending accounts for 70 percent of U.S. economic activity."
This month the Conference Board stated that Consumer Confidence ticked up just a bit last month from the dismal reading of 45.2 to 45.4. So, while the index failed to deteriorate further it remains mired at very depressed level which continues to be a bad sign for the economy. The release also does not bode well for the September employment report as a full 50% of the Conference Board's sample say jobs are currently hard to get. That sub-index is up 1.5 percentage points from August and compares with 44.8 percent in July and 43.2 percent June. This trend may be signaling that the jobs market is pivoting lower which falls in line with our recent post on "why jobless claims are about to surge."
If there are any positives in today's report it is that the six-month outlook reflected a 1.6 point gain and inflationary expectations declined to 5.7. However, pessimism is still rampant in the index and income expectations remain very depressed. Primarily there is "hope" in the future subcomponents of the index that the economy will get better. Unfortunately, there is little evidence that these numbers won't reverse course in the coming months ahead.
As a reminder a reading above 90 indicates the economy is on solid footing; above 100 signals strong growth. As you can see in the chart above we have a long way to go to get back to those levels.
Last month we stated that "While the conference board stated that there were a number of factors contributed to the index's decline such as the downgrade of the U.S. federal debt and revived concerns about the health of European banks; the reality is that the majority of American's do not follow these economic/financial events closely and are responding in the survey as to how they FEEL about their current and future situations. Americans are plagued by economic worries such as keeping their job if they have one, threats of termination or layoffs, rising costs of food and energy matched against stagnant wage growth and home values remain weak."
The average American continues to struggle to make ends meet. The recent decline in commodity prices may provide a boost to the report in the coming months but we will have to wait and see. The offset by a weaker stock market and weaker employment may offset any decline in inflationary pressures and psychological trends don't change rapidly. The data tells us a lot about the state of the consumer and the economy. In the coming months it will be critical for the trends to reverse or our prediction of a recession in 2012 will become a reality.