Consumer Confidence Takes a Hit

Consumer confidence tumbled in July to its lowest level since early 2009 when the economy was still in recession, reports the July Survey of Consumer Confidencence from Thomson Reuters -University of Michigan.

"Prospects for economic growth were much more negative, and the unemployment rate was expected to rise twice as frequently as decline. Personal financial expectations slipped as the majority of consumers anticipated no income increases. Although inflation expectations fell in July, just one-in-ten consumers anticipated inflation-adjusted income gains during the year ahead. As a result, consumers have been forced to reduce planned discretionary spending," the survey warns.

 “Consumers continued to view their finances in quite bleak terms both for the year ahead as well as over the next five years," said Richard T. Curtin, the survey's chief economist. "More than twice as many house-holds reported that their finances had worsened rather than improved during the past year, eight-in-ten anticipated no financial improvement during the year ahead, and six-in-ten expected no financial gains over the next five years. The absence of positive near and longer term financial expectations has turned consumer resilience into consumer fragility at the first signs of renewed adversity. The data indicate that spending will be barely higher in the second half than in the first half of 2011.”

The Survey of Consumers is a rotating panel survey based on a nation-ally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95 percent level in the Sentiment Index is 4.8 points; for Current and Expectations Index the minimum is 6.0 points.

"While consumers may not fully understand the debate about the federal debt, they do understand the meaning of the oft repeated warnings of 'dire economic consequences,'" the survey says.

This is especially true, the survey says, in today’s economy since consumers are keenly aware of the grave consequences of excessive personal debt. While there is some reason to expect that confidence will increase when the debt ceiling is finally raised, the underlying issue of aligning spending and taxes is unlikely to be resolved anytime soon, the survey reports.

Vehicle buying plans declined in July, falling to the same unfavorable level at the height of the last recession at the close of 2008. Favorable buying attitudes fell to 53 percent in July, down from 58 percent in June and 62 percent last July, the study says.

"When asked to explain their views, favorable references to vehicle prices were cited by less than half the number recorded last July. Buying plans for household durables also declined, reduced by heightened uncertainty about future income and job prospects–voiced by one-third of all consumers in July," says the survey.

The Sentiment Index was 63.7 in the July 2011 survey, down from 71.5 in June and last July’s 67.8. The July loss was especially sharp in the Expectations Index, a component of the Index of Leading Economic Indicators, which fell to 56.0 in July from 64.8 in June and last July’s 62.3. The Current Conditions Index fell to 75.8 in July 2011 from 82.0 in June and last July’s 76.5, the report says.


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