The U.S. Conference Board’s index of consumer sentiment fell to 92.6 in the month of July from June’s 98.3, partially reversing the gains in June. While the confidence was expected to fall in July, the reading was slightly below the consensus expectations of 95. The decline was mainly due to a fall in the expectations index, as consumers became less positive regarding business, employment and income conditions. This possibly reflects renewed uncertainty regarding the near-term economic prospects as COVID-19 cases rise, said Barclays in a research report.
The fall in consumer sentiment is widely in line with the fall in the University of Michigan’s consumer confidence index for July, which also dropped because of virus-related concerns. With cases still rising sharply, and states having to partly reverse or delay reopening measures, consumer sentiment is expected to stay muted in the coming months, said Barclays in a research report. Moreover, in the absence of additional fiscal stimulus measures, several government assistance programs to households and businesses are due to expire soon, which would make income prospects less favourable.
Consumers’ expectations dropped, while assessments regarding the present situation continue to be sanguine. Among the two sub-indices, the Present Situation Index dropped the most since February, with a trough in April, reflecting the impacts of the pandemic. Nevertheless, consumers have become a bit more positive about current business and employment conditions since April, likely encouraged by the phased re-opening of the economy and rebounds in the labor market. The labor market differential, which captures “jobs plentiful less jobs hard to get,” turned positive for the first time since March, and assessments of current business conditions remained stable from June.
However, the Expectations Index fell 14.6 points to 91.5 in July, lower than the April reading, as consumers became less positive about near-term economic conditions. The percentage of consumers expecting business conditions to rebound over the coming six months fell to 31.6 percent, while those anticipating business conditions to deteriorate rose to 19.3 percent. Consumers’ outlook for the labor market was also less favourable, with a higher proportion now expecting fewer jobs in the coming months.
