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Higher Prices, Covid Surge Knock US Consumer Confidence to 6-Month Low

The U.S. consumer is feeling somewhat rattled these days.

On Tuesday, The Conference Board’s Consumer Confidence Index declined 11.3 points in August, following a decrease in July that was also revised downward. The Index is now at 113.8, and represents its lowest level since February 2021 when the Index stood at 95.2. Both components of the index saw declines. The Present Situation Index, measuring sentiment of current business and labor market conditions, fell to 147.3 from 157.2 last month. And the Expectations Index, which measures the short-term outlook for income, business and labor market conditions, dropped to 91.4 from 103.8.

“Concerns about the Delta variant—and, to a lesser degree, rising gas and food prices—resulted in a less favorable view of current economic conditions and short-term growth prospects. Spending intentions for homes, autos, and major appliances all cooled somewhat; however, the percentage of consumers intending to take a vacation in the next six months continued to climb,” Lynn Franco, senior director of economic indicators at The Conference Board, said. “While the resurgence of Covid-19 and inflation concerns have dampened confidence, it is too soon to conclude this decline will result in consumers significantly curtailing their spending in the months ahead.”

The latest reading shouldn’t be a surprise. A hint of what might be ahead could be seen from a lesser-followed preliminary report from the University of Michigan’s Surveys of Consumers earlier this month for August which indicated a collapse in consumer sentiment. That didn’t change when the final August data report came out last Friday. Michigan’s Index saw a similar decline, down 13.4 percent to 70.3 from July’s 81.2 reading. Higher inflation trends plus the surging Delta variant were also cited as reasons for declining confidence levels, according to Richard Curtin, the University’s chief economist for its  Surveys of Consumers.

Curtin also noted two other periods—Hurricane Katrina and the terrorist attacks of Sept. 11, 2011—in which confidence collapsed, and then rebounded, although the emotional impact on consumer spending from both events meant that the rebound took much longer than usual. Curtin said the same thing could happen this time, although that might not help much with the upcoming holiday shopping season. The National Retail Federation, a retail trade industry organization, is holding fast to its updated June projection for annual retail sales in 2021 to increase 10.5 percent to 13.5 percent from an initial projected growth rate of 6.5 percent to 8.2 percent.

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Economists at Wells Fargo Securities said that with the decline in confidence against a backdrop of war and pestilence, the best case scenario might be hope that vaccine hesitancy drops so Covid case counts fall. “Until then, consumer spending will be under pressure,” the economist said in a report authored by Tim Quinlan and Sara Cotsakis.

“Hospitals have been inundated with Covid patients and even some vaccinated people have seen an uptick in cases. August brought with it an unwelcome reinstatement of mask mandates and other restrictions that have dashed consumers’ hopes of a swift return to normal—at least in the near term,” the economists noted, adding, “The media images of the U.S. withdrawal from Afghanistan likely piled on to the list of things that may have dented consumer confidence in August. Rising prices continued to be a factor as well, with forward-looking inflation over the next year rising to 6.8 percent in August.”

One thing keep an eye on in the weeks ahead could be the jobs market. In the August Conference Board’s reading, 24 percent of respondents said business conditions are “bad,” up from 20 percent, while 54.6 percent said jobs are “plentiful,” down from 55.2 percent. But over the near term, about six months out, 17.8 percent expect business conditions to worsen, up from 11.9 percent. And 23 percent said they expect more jobs to be available in the months ahead, down from 25.5 percent.

What’s interesting—and potentially worrisome—is the progression of fewer respondents stating that jobs are plentiful and less people expecting more jobs to be available over the next six months. That comes despite the Bureau of Labor Statistics in mid-August noting that the U.S. has 10.1 million jobs available and 8.7 million workers pounding the pavement looking for work. In fact, employers have even begun to pile on incentives that include higher wages and sign-on bonuses to fill the open positions, but there’s still an apparent shortage.

In the most recent data on first-time jobless claims, the seasonally adjusted initial claims were 353,000 for the week ending Aug. 21, an increase of 4,000. And the prior week’s tally was revised up by 1,000 to 349,000, although one plus was that the four-week moving average was 366,500, down 11,500 from the previous week’s revised average.

The Wells Fargo economists said that even though it will take some time before the total number of jobs return to pre-pandemic levels, the current labor market is “quite strong.” While employers say they can’t find workers, the quit rate was at 2.7 percent in June, higher than in either of the prior two expansions, they noted.

“Despite the many other problems in the world, it remains a seller’s market for labor these days and consumers can feel it. That is why we suspect that consumers will regain confidence in the months ahead. It is about more than just finding work, it is about naming your terms with employers that are increasingly eager to hire,” the Wells Fargo economist concluded.

Even though the summer is ending with confidence levels at a six-month low, neither Quinlan nor Cotsakis believe consumers are about to scale back their spending.