Consumer confidence in June dropped as people expressed growing pessimism about the short-term prospects for the economy.
The Conference Board’s consumer confidence index fell to 100.4 in June, down from 101.3 the month before, the group announced on Tuesday. That is another warning signal for President Joe Biden, who has been trying to shore up support for his handling of the economy.
The index that gauges consumers’ assessment of the labor market and business conditions increased from last month, although the headline number was dragged down by the Expectations Index, which is based on consumers’ short-term outlook for income, business, and labor market conditions.
That index fell to 73 in June, down from 74.5 in May. If the index is below 80, it typically signals a recession ahead, according to the Conference Board. It has been in recession warning territory for some five months.
“Confidence pulled back in June but remained within the same narrow range that’s held throughout the past two years, as strength in current labor market views continued to outweigh concerns about the future,” said Dana Peterson, the group’s chief economist. “However, if material weaknesses in the labor market appear, confidence could weaken as the year progresses.”
Peterson said the decline in consumer confidence was centered on consumers aged 35 through 54. Those under 35 and 55 and older saw confidence improve over the past month.
“Compared to May, consumers were less concerned about a forthcoming recession. However, consumers’ assessment of their Family’s Financial Situation, both currently and over the next six months, was less positive,” she added.
In good news, though, year-ahead inflation expectations dipped slightly from 5.4% to 5.3%. Consumers were also positive about their outlook for the stock market.
The other prominent gauge of consumer sentiment toward the economy, the University of Michigan Consumer Sentiment Index, dropped to 65.6 in June, defying economists’ expectations it would tick up.
That was a 5.1% dip in consumer sentiment from the month before. The last time sentiment was that low in the index was November 2023.
Republicans and former President Donald Trump, who is vying to unseat Biden, have used discontent about the economy to their advantage. Shortly after the new consumer confidence numbers were released on Tuesday, House Budget Committee Chairman Jodey Arrington (R-TX) blasted the president.
“Today’s report shows that the American people continue to endure the harsh economic consequences of the Biden Administration’s policies,” he said. “The lack of consumer confidence underscores a bleak economic outlook, with American consumers worried about their future financial security.”
Higher interest rates, in addition to woes about inflation, are undoubtedly playing a role in souring consumer sentiment.
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The Federal Reserve has been closely watching inflation data and data on the overall economy to assess when it will finally start cutting interest rates. At the start of the year, most economists were expecting several rate cuts in 2024, but recent hotter-than-expected inflation reports have kept pushing back the timing of the first rate cut.
Now, the Fed is thinking there will be one rate cut or perhaps two this year. Investors are a bit more bullish and expect the first cut to come in September, with at least one more downward revision after that.
