Consumer Confidence Erodes in July

August 2, 2011 (Chris Moore)

Consumer confidence tumbled in July to its lowest level since early 2009 as financial uncertainty leads consumers to expect a slowdown in future economc growth according to the latest Surveys of Consumers by Reuters/University of Michigan.

Consumers were much more negative about the prospect of economic growth in July with the unemployment rate expected to rise twice as frequently as decline.

Not only did consumers view current finances as quite bleak, but their view in both the year ahead and over the next five years reflected the same sentiment.

The majority of the consumers anticipated no income increases with just one in ten anticipating inflation-adjusted income gains during the year ahead, forcing consumers to reduce planned discretionary spending. The one bright note in July, inflation expectations fell.

Financial expectations were even more dismal in the long term with 60 percent of the consumers expecting no financial improvement over the next five years and a whopping 80 percent anticipating no financial improvement over the next year.

When it came to vehicle buying plans, favorable buying attitudes fell to levels last seen at the height of the last recession in 2008. Favorable buying attitudes fell to 53 percent in July, dropping from 58 percent in the previous month and down from 62 percent in July of last year.

Consumer’s most voiced concerns in the survey were heightened uncertainty about future income and job prospects.

All three indices that make up the Index of Leading Economic Indicators registered large declines in July.

The Sentiment Index fell to 63.7 in July from 71.5 in June and down from 67.8 in July of last year. The Expectations Index was 56.0 in July, down from 64.8 in June and also down from 62.3 in July 2010. The Current Conditions Index fell to 75.8 in July from 82.0 in June and down slightly from 76.5 in July of last year.

Richard Curtin, Surveys of Consumers chief economist said, “Consumers continued to view their finances in quite bleak terms both for the year ahead as well as 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.”

Tags: Surveys of Consumers, Reuters/University of Michigan, consumers, economic slowdown, finances, planned discretionary spending, income gains, financial expectations

Source:
Reuters/University of Michigan