US Economy | Confidence takes hit

U.S. consumers are increasingly worried about jobs and the economy, the Conference Board said Tuesday, as it reported that its consumer confidence index plummeted to 52.9 in June — the lowest level since March — from a downwardly revised 62.7 in May.

Increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence and until the pace of job growth picks up, consumer confidence is not likely to pick up.

Earlier this month the government reported that nonfarm payrolls grew by a seasonally adjusted 431,000 in May, but most of the new jobs were temporary jobs at the U.S. Census, with very weak private-sector hiring.

Double dip? While the confidence report could fuel fears of a “double-dip” recession undercutting U.S. gross domestic product, analysts at RDQ Economics said such worries may be misplaced.

Confidence has double-dipped in the last two recoveries (in early 1992 and early 2003) without the economy falling back into recession and the June pullback in confidence is far less severe than either of those two episodes,” according to an RDQ research note. Furthermore, we think that the response to the oil leak in the Gulf of Mexico is depressing confidence.

Meanwhile, analysts at Barclays Capital Research said the confidence report contains volatility, and they expect a positive overall trend in confidence as the job market expands in the new few months.
Buying plans impacted – Consumers with plans to buy a home within six months fell to 1.9% in June – the lowest level since 1982 other than 1.7% in December, according to the Conference Board. In May 2.1% had plans to buy a home.

Those with plans to buy an automobile fell to a record low of 3.7% in June from 6% in May. The data go back to 1967.

Those with plans to buy major appliances fell to 22.9% in June from 26% in May.

While the recession may have technically ended last summer, consumers remain skittish about job and income prospects and are refraining from consuming in a sufficient enough manner as to create substantial growth in GDP, all enhancing an already sluggish US economy.