Research >> Economics
University of Michigan Consumer Confidence tumbled
|
Confidence tumbled in July due to heightened concerns about personal financial prospects as well as the overall economic outlook. Income and job prospects were extraordinarily weak and those bleak prospects have made consumers more cautious spenders. Rather than the economy gaining strength, consumers now anticipate a slowing pace of growth, and rather than economic policies acting to improve prospects, the policies of the Obama administration have increased economic uncertainty among consumers. Overall, the data suggest that the current slowdown in spending is likely to persist well into 2011 as it reflects a widespread and general realignment of job and wage expectations. While a double dip is still unlikely, it now has a non-ignorable 25% probability.
Grim Outlook for Personal Finances
Nearly a year after the economic recovery began, the financial situation of consumers has continued to weaken mainly due to the loss of jobs and work hours as well as stagnating incomes. Half of all consumers reported that their finances had worsened this July as well as in last July’s survey. The smallest proportion ever recorded in the sixty year history of the surveys anticipated an increase in their household’s income during the year ahead. Moreover, eight-in-ten consumers expected no improvement in the unemployment rate during the year ahead.
Consumers sensed a slowdown in economic growth. The backslide meant that six-in-ten consumers judged prospects for the economy unfavorably, and just one-in-three consumers anticipated uninterrupted economic growth during the next five years. Confidence in economic policies fell to the lowest level in the July survey since the start of the Obama administration. While the effectiveness of Obama’s policies in creating jobs remained the top concern, the rising level of federal debt and prospects for higher future taxes have gained a foothold as well.
The Sentiment Index was 67.8 in the July 2010 survey, down sharply from the 76.0 in June, erasing the entire gain since 66.0 was recorded last July. The Expectations Index, a component of the Index of Leading Indicators, declined by 10.7% in July, falling to the lowest level since March of 2009. The Current Conditions Index also posted a double digit decline, but it remained above last year’s 70.5.
Scarce jobs and stagnating incomes have been the top concerns of consumers for some time. What changed in July was their recognition that the anticipated slowdown in the economy will keep jobs scarce for some time, while their uncertainties about future prospects were increased by the policies of the Obama administration. Rather than itching to resume old spending habits, consumers have begun to actively embrace a more defensive outlook, making them more likely to further pare their debt and increase saving and reserve funds. This new defensive posture could result in even slower economic growth and fewer jobs in the future.
Posted: July 30, 2010 Friday 10:00 AM