The nation’s two top surveys of consumer sentiment produced mixed results within a narrow range in July as Americans continued to express frustration about high prices and began to exhibit concern about the health of the job market. The Conference Board said its Consumer Confidence Index rose to 100.3 from a downwardly revised 97.8 in June.
“Confidence increased in July but not enough to break free of the narrow range that has prevailed over the past two years,” Dana M. Peterson, chief economist at The Conference Board, stated in a press release. “Even though consumers remain relatively positive about the labor market, they still appear to be concerned about elevated prices and interest rates, and uncertainty about the future — things that may not improve until next year.
“Compared to [June], consumers were somewhat less pessimistic about the future,” Peterson added. “Expectations for future income improved slightly, but consumers remained generally negative about business and employment conditions ahead.
“Meanwhile, consumers were a bit less positive about current labor and business conditions. Potentially, smaller monthly job additions are weighing on consumers’ assessment of current job availability: While still quite strong, consumers’ assessment of the current labor market situation declined to its lowest level since March 2021.
In July, Peterson said, confidence improved among consumers younger than 35 and those 55 and older; only the 35-to-54 age group declined. “On a six-month moving average basis, confidence remained the highest among consumers under 35,” he said. “On a month-over-month basis, no clear pattern emerged in terms of income groups. On a six-month moving average basis, consumers making over $100,000 were the most confident, but the gap with other groups narrowed.”
Peterson said the proportion of consumers predicting a recession increased in July but remains well below the 2023 peak. “Consumers’ assessment of their family’s financial situation — both currently and over the next six months — was less positive,” he said. “Indeed, assessments of familial finances have deteriorated continuously since the beginning of 2024.”
Meanwhile, the other major indicator of consumer sentiment ticked down a bit in July. The University of Michigan said its Consumer Sentiment Index fell to 66.4 from 68.2 in June. “Consumer sentiment has remained virtually unchanged in the last three months,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “July’s reading was a statistically insignificant 1.8 index points below June, well under the margin of error.
“Sentiment has lifted 33% above the June 2022 historic low, but it remains guarded as high prices continue to drag down attitudes, particularly for those with lower incomes,” Hsu added. “Labor market expectations remain relatively stable, providing continued support to consumer spending. However, continued election uncertainty is likely to generate volatility in economic attitudes in the months ahead.”
The Commerce Department said the economy expanded in the second quarter at double the rate it did in the first, surprising economists who expected little improvement from earlier in the year. The increase was 2.8%, compared with a 1.4% advance in the prior quarter.
“Economic growth is solid, not too hot and not too cold,” Chris Rupkey, chief economist at FWDBonds, a financial research firm, told Reuters. “Inflation looks to be going the Fed’s way, and an easing of monetary restraint with an interest rate cut is likely in September.”
The government said consumer spending rose at a rate of about 2.3% in the second quarter after a gain of just 1.5% in the prior quarter. “The U.S. economy is much stronger than people realize, and to the extent that markets were worried about a growth slowdown, they should breathe a sigh of relief,” Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, told Reuters.
In June, consumer spending rose 0.3%, although personal income rose just 0.2%, the government said.
Inflation continued its slow but steady decline in June. The Commerce Department said the Personal Consumption Expenditures Price Index rose just 0.1%, up slightly from the previous month’s flat result. The core PCE index, which strips out the volatile food and energy categories, rose 0.2% in June, also up slightly from a rise of 0.1% in May. Compared with May a year earlier, overall inflation declined to 2.5% from 2.6%.
The PCE index is the Federal Reserve’s preferred inflation measure. The central bank is trying to get inflation down to 2% and has hesitated to reduce its benchmark interest rate until it is convinced inflation is sustainably declining toward its goal rate. The Fed’s benchmark rate remains in the range of 5.25% to 5.5%.
The Conference Board said its Leading Economic Index fell slightly in June, marking the fourth straight monthly decline. The index dropped 0.2%, to 101.1, after a revised decline of 0.4% the previous month that was 0.1% better than the original result.
“The U.S. LEI continued to trend down in June, but the contraction was smaller than in the past three months,” Justyna Zabinska-La Monica, senior manager, business cycle indicators, at The Conference Board, stated in a press release. “The decline continued to be fueled by gloomy consumer expectations, weak new orders, negative interest rate spread and an increased number of initial claims for unemployment.
“However, due to the smaller month-on-month rate of decline, the LEI’s long-term growth has become less negative, pointing to a slow recovery,” Zabinska-La Monica added. “Taken together, June’s data suggest that economic activity is likely to continue to lose momentum in the months ahead. We currently forecast that cooling consumer spending will push U.S. GDP growth down to around 1% (annualized) in Q3 of this year.”
The mood at the nation’s small businesses brightened a bit in June. The National Federation of Independent Business said its Small Business Optimism Index rose one point, to 91.5, but that improvement still left the index significantly below its historical average of 98 for the 30th month in a row.
“Main Street remains pessimistic about the economy for the balance of the year,” NFIB chief economist Bill Dunkelberg stated in a press release. “Increasing compensation costs has led to higher prices all around. Meanwhile, no relief from inflation is in sight for small-business owners as they prepare for the uncertain months ahead.”
Twenty-one percent of member business owners said inflation was their top business problem in June. Nineteen percent said labor quality was their top problem, and the twin issues headed the list, as they had the month before. A seasonally adjusted 37% of owners reported having jobs they could not fill. Also on a seasonally adjusted basis, a net 38% of owners reported raising pay in June.
Confidence among the nation’s home builders deteriorated slightly in July. The National Association of Home Builders said its NAHB/Wells Fargo Housing Market Index fell one point, to 42. It was the lowest reading since last December.
“While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders moved higher, indicating that builders expect mortgage rates to edge lower later this year, as inflation data are showing signs of easing,” NAHB chairman Carl Harris, a custom-home builder from Wichita, Kan., stated in a press release.
“Though inflation is still above the Federal Reserve’s target of 2%, it appears to be back on a cooling trend,” NAHB chief economist Robert Dietz added in a press release. “NAHB is forecasting Fed rate reductions to begin at the end of this year, and this action will lower interest rates for home buyers, builders and developers. And while home inventory is increasing, total market inventory remains lean at a 4.4 months’ supply, indicating a long-run need for more home construction.”
The three HMI component indexes were mixed in July, and all were below the level of 50. Numbers lower than 50 indicate that more builders view conditions as poor than good. The index that charts current sales conditions fell one point, to 47; the index that gauges the traffic of prospective buyers also fell a single point, to 27; but the component that measures sales expectations in the next six months rose a point, to 48, narrowly missing the positive range.
The Commerce Department said sales of new homes were relatively flat in June, declining 0.6% to a seasonally adjusted annual rate of 617,000, from a slightly upwardly revised reading in May. The pace of new-home sales in June was down 7.4% from the same month a year earlier and was at the lowest pace since last November.
“Many potential buyers are remaining in a holding pattern due to elevated mortgage rates that averaged near 7% in June,” Harris, of the NAHB, stated in a press release. “However, moderating inflation suggests lower interest rates in the months ahead, and that should bring more buyers off the sidelines.”
“Though new-home inventory in June remained elevated at a 9.3 months’ supply at the current building pace, there is still a long-run need for more construction because existing inventory remains relatively low,” Jing Fu, NAHB director of forecasting and analysis, stated in a press release. “Due to a lack of resale homes for sale, the combined inventory for new and existing single-family homes remains lean at a 4.7 months’ supply, according to NAHB estimates.”
The median new-home sale price in June was $417,300, up 2.5% from May and essentially flat compared with the same month a year earlier.
The National Association of Realtors said existing-home sales dipped in June, falling 5.4% to a seasonally adjusted annual rate of 3.89 million. “We’re seeing a slow shift from a seller’s market to a buyer’s market,” NAR chief economist Lawrence Yun stated in a press release. “Homes are sitting on the market a bit longer, and sellers are receiving fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitively rising on a national basis.”
The median existing-home price in June was $426,900, up 4.1% from the same month a year earlier and another record high. It marked the 12th consecutive month of year-over-year price gains. “Even as the median home price reached a new record high, further large accelerations are unlikely,” Yun said. “Supply-and-demand dynamics are nearing a balanced market condition. The month’s supply of inventory reached its highest level in more than four years.”
This article was originally published in the September 2024 issue.
