Consumer Confidence Suffers as Labor Outlook Worsens

by devteam July 28th, 2009 | Share

The tug-of-war between rising unemployment and rising stock prices was won by the former this month as Consumer Confidence fell for the second month, coming in below analysts’ expectations.

The Conference Board measure of confidence fell to 46.6 in July, down from 49.3 in June. Leading the drop was a fall in the expectations component from 65.5 to 62.0, while the present situation component continues to report deep pessimism amongst consumers with a 23.4 reading, down from 25.0 last month.

“The decline in the Present Situation Index was caused primarily by a worsening job market, as the percent of consumers claiming jobs are hard to get rose sharply,” said the Conference Board’s Lynn Franco. 

“The decline in the Expectations Index was more the result of an increase in the proportion of consumers expecting no change in business and labor market conditions, as opposed to an increase in the percent of consumers expecting conditions to deteriorate further,” she added. 

Franco said there is more pessimism concerning income expectations, “which does not bode well for spending in the months ahead.”

The closely-watched component tracking the labor market outlook was mixed. Respondents expecting more jobs in the months ahead decreased to 15.0% from 17.5%, which is awful on its own. However, those expecting fewer jobs decreased to 26.3% from 27.6%. 

“This is a weaker-than-expected confidence report and speaks more to the current labor market troubles than anything else,” said Ian Pollick from TD Securities. “Of course, the fact that the employment measure fell to a cyclical suggests that it will eventually start rising again, and will likely improve the level of confidence in the process.”

Analysts at RDQ say the feedback on the labor market is intriguing because the jobless claims data, though distorted by seasonal issues, has been less pessimistic this month.

“The state of the labor market in July is particularly unclear, which raises the importance of the July payroll report,” RDQ said. “The labor market is the Achilles heel of the recovery and this report on consumer confidence is slightly unsettling for our case that the economy is shifting from recession to a tepid recovery.”

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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