US Consumer Confidence Wanes Amid Economic Concerns

The Conference Board’s consumer confidence index fell to 100.4 in June from a revised 101.3 in May. Although this met economists’ expectations, it highlighted a continuing trend: even with ongoing economic growth and a robust labor market, American confidence is diminishing due to prolonged high inflation and interest rates.

Another survey by the Federal Reserve Bank of Philadelphia’s Consumer Finance Institute indicated that while there is a generally positive economic outlook, over one-third of respondents were anxious about their financial stability in the coming year.

Consumer confidence metrics are closely monitored as spending accounts for nearly 70% of US economic activity, especially with the upcoming presidential election. The Conference Board’s report noted an improved perception of the labor market but a decline in views on current business conditions. If labor market weaknesses emerge, consumer confidence may further decline.

Different aspects of the economy elicit varying levels of confidence. The present situations index rose to 141.5 from 140.8, marking the highest level since March. However, the expectations index fell to 73, remaining below the recession threshold of 80 for the fifth consecutive month. This index has only surpassed the recession threshold six times since March 2022, when the Federal Reserve began its rate-tightening measures due to rising inflation.

While inflation has decreased over the past two years, it remains above the central bank’s 2% target, and interest rates are at a 23-year high, suppressing demand. Despite a strong job market supporting consumer spending and economic momentum, elevated inflation and interest rates have strained some consumers, leading to increased credit card balances and rising delinquencies.

The Philadelphia Fed’s recent LIFE Survey highlighted a significant rise in financial anxiety, with 26.2% of respondents in April 2024 expressing concern about meeting financial obligations in the next six months, up from 20.7% in April 2023.

The Conference Board’s consumer confidence index suggests a slowdown in spending growth and a slight increase in unemployment ahead, according to Pantheon Macroeconomics. The index, along with the University of Michigan’s consumer sentiment index, are key indicators of consumer attitudes toward the economy, with the former more influenced by employment and the latter by household finances and inflation.

The Michigan index’s preliminary June reading showed sentiment at a seven-month low. The next critical inflation update will come with the Commerce Department’s release of the Personal Consumption Expenditures price index data for May, the Fed’s preferred inflation measure.

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