Americans felt more pessimistic about the economy in August, following two straight months of growing confidence.
The Conference Board\u2019s Consumer Confidence Index, which gauges Americans\u2019 attitudes\u2002towards the economy and job market, fell to a reading of 106.1 in August, down from 114 in July, reversing the improvements made in the summer.
The falling optimism was mostly due to inflation worries, with some concerns about the labor market. Consumers\u2019 expectations of economic conditions in the coming months declined sharply.
\u201cConsumer confidence fell in August 2023, erasing back-to-back increases in June and July,\u201d said Dana Peterson, chief economist at The Conference Board, in a release.
\u201cAugust\u2019s disappointing headline number reflected dips in both the current conditions and expectations indexes. Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular.\u201d
Gas prices have risen\u2002in recent weeks\u00a0and student loan repayments resume in October, which could also weigh on US consumers\u2019 moods. The Labor Day holiday, coupled with Hurricane Idalia\u2019s threat of taking gasoline refinery facilities offline,\u2002could further push up gas prices and overall inflation.
The University of Michigan\u2019s consumer survey last week also showed\u00a0a deterioration in Americans\u2019 attitudes toward the economy\u00a0in August, though at a more subdued pace, according to a final reading.
Federal Reserve officials have emphasized that long-term inflation expectations remain in check. But if inflation stays stubbornly high for longer than expected, US consumers could get used to what they perceive to be permanently higher prices. That could make it extremely hard for the Fed to bring inflation back down to its stated target of 2%.
A focus on consumer spending
Consumer attitudes are sometimes a bellwether for spending, which accounts for about two-thirds of US economic output. If consumers feel pessimistic for a prolonged period of time, they could possibly pull back, which would reverberate throughout the economy.
Consumer spending slowed throughout the spring after jumping at the beginning of the year, then picked up in the summer. Spending rose in June by 0.5%, a resurgence from the prior four months. In May, spending ticked up by a revised 0.2%.
It\u2019s unclear whether the\u2002US consumer\u2019s resilience\u2002will persist through the end of the year, though Fed economists said they\u00a0no longer predict a 2023 recession. Investors expect consumer spending to slow the rest of the year, but not fall off a cliff.
In fact, concerns about the economy have recently evolved to be quite the opposite. Economic growth picked up in the second quarter from the prior three-month period as Americans spent robustly on services, but pulled back on goods purchases.
That surprising strength kept Fed officials on edge in July, when they voted to hike interest rates by a quarter point to their highest level in 22 years, according to minutes from that meeting. That\u2019s because the US economy\u2019s strength might not be consistent with 2% inflation.
Fed Chair Jerome Powell said in his keynote speech at the Kansas City Fed\u2019s annual economic symposium last week that the Fed wants to see\u00a0\u201cbelow-trend growth.\u201d He stood firmly by the central bank\u2019s 2% target.
The labor market\u2019s impact
But both the economy and the job market remain on strong footing, and that\u2019s helping to keep inflation elevated.
Plus, the Atlanta Fed estimates GDP will grow at an annualized, seasonally adjusted rate of 5.9% in the third quarter, a sharp acceleration from the second quarter\u2019s 2.4% rate. On Wednesday, the Commerce Department is set to release its second estimate of second-quarter GDP growth.
The Conference Board\u2019s consumer survey is known for capturing attitudes on the job market. Employers continue to hire at a solid pace and wages have finally outpaced inflation, but the broader job market is expected to cool further under the weight of the Fed\u2019s most aggressive rate-hiking campaign in decades. A separate report from the Labor Department showed that job openings\u00a0fell below 9 million\u00a0for the first time since March 2021 in July.
\u201cThe larger-than-expected drop in job openings in July indicates that consumers are reacting to the shifting labor landscape,\u201d wrote Sam Millette, fixed income strategist for Commonwealth Financial Network, in an analyst note.<\/p>\n\n\n\n
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