Consumer confidence fell beyond expectations in July. The Conference Board's Consumer Confidence Index was 76.6, down 6.9 points from the revised 83.5 in June. Economists had predicted a much smaller decline. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households.
Confidence fell across both portions of the Conference Board index. The Expectations portion of the index dropped surprisingly. This measure of future economic activity was 86.4, down 10 points from June. The Expectations index had been steadily increasing for the last three months.
The Present Conditions index, a factor in the total composite index, decreased to 61.9 from 64.2 in June. This index measures how consumers perceive the current state of the economy.
The University of Michigan's Consumer Sentiment Index, a comparable index, increased slightly in July to 90.9 from 89.7 in June. The component indices were mixed. The Expectations index dropped 2.7 points to 83.7 in July, while the Present Conditions portion was up 7.4 points to 102.1.
This increase in the Present Conditions index is the largest in more than 10 years and quite unusual compared to previous readings. Recently, consumers have been less confident about present conditions, weighed down by weak labor market conditions and high debt levels, but had hopeful future expectations. July's jump in present conditions may be partially attributed to increased take home pay as a result of the economic stimulus package.
Despite the unexpected changes in July's consumer confidence indices, readings are still above the pre-war lows. Supports for continued spending include the tax rebates that should soon begin arriving in households as well as steady retail prices. Since consumer spending accounts for two-thirds of the U.S. economy, consumer confidence will remain a closely watched economic indicator. Fluctuations in confidence levels are likely until consumers feel more certain about sustained economic recovery.
Sources: www.conference-board.com
www.economy.com
