The Conference Board’s July consumer confidence report is due to come out later today. Consumer confidence is forecast to rise to 125.2.
In June, consumer confidence fell to 121.5.
The index for June missed estimates of 132.0 and fell from May’s headline print of 131.3. The present situation index fell to 162.6 from 170.7 in May. Meanwhile, the expectations index which is based on the short term outlook for income, business and labor market fell to 94.1 from 105.0 previously.
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The consumer confidence index rose for three consecutive months until May before easing in June.
Consumer confidence has been gradually edging lower after peaking to 137.9 in October 2018. The steady decline reflects the ongoing uncertainty among consumers on a number of factors.
As of June, the consumer confidence index is at its lowest levels since September 2017.
The index is a leading measure of consumer spending which contributes to the overall gross domestic product activity in the United States.
Trade Tensions Weigh on Consumers
Consumers participating in the survey pointed to the trade tensions and higher tariffs. In the previous month, trade tensions had somewhat eased. However, with the US-China trade talks resuming, this issue is now back on the forefront.
Economists are yet to fully assess the impact of the trade wars so far. But it is the uncertainty that stems from them that affects consumer sentiment.
Although the consumer confidence index will not impact the markets much, it is seen as a leading indicator. Investors and consumers alike are no doubt concerned about slowing economic growth.
The Federal Reserve, on its part, has committed to lowering interest rates. The FOMC will be meeting this Wednesday, and interest rates are certain to be cut by at least a quarter basis point.
But the question remains whether this will be enough to bring back consumer confidence.
Within the short term, we expect consumer confidence to remain at the current levels. Despite the Fed rate cut, it will take at least a few months to see how consumers respond to lower interest rates.
With trade tensions still the main talking point, the effects of the Fed rate cut will see only a small impact.
Assessing the Economic Conditions in July
The general economic landscape in July was broadly stable. It wasn’t until the last two weeks of the month that the trade wars came up. Meanwhile, the International Monetary Fund lowered its growth forecasts.
However, for the US economy, growth was revised slightly higher to 2.6%.
In June, labor market data was robust, rebounding from the slump in the previous months.
Various Federal Reserve officials grew more vocal about cutting interest rates in a bid to avoid a sharper slowdown and perhaps even a possible recession. The general overview at the time is cautious.
There were incidents of rising tensions between the US and Iran. However, this could see only a limited effect among consumers.
Inflation for the month of June fell to 1.6% on an annualized basis. This was down from 1.8% in the month before. The core inflation rate, however, remained at 2.1%, beating forecasts of a decline to 2.0%.
As a result, we could possibly expect to see either the consumer confidence falling even further or perhaps a stabilizing. It is highly unlikely that consumer confidence will rebound sharply.
The data for July could still be well below the recent highs, especially that of October 2018 high of 137.9.