Consumer Confidence Takes a Hit in June

“Consumer confidence fell for a second consecutive month in June,” said Lynn Franco, senior director of economic indicators at The Conference Board. “While the Present Situation Index was relatively unchanged, the Expectations Index continued its recent downward trajectory – falling to its lowest point in nearly a decade. Consumers’ grimmer outlook was driven by increasing concerns about inflation, in particular rising gas and food prices. Expectations have now fallen well below a reading of 80, suggesting weaker growth in the second half of 2022 as well as growing risk of recession by year end.”

“Purchasing intentions for cars, homes, and major appliances held relatively steady – but intentions have cooled since the start of the year, and this trend is likely to continue as the Fed aggressively raises interest rates to tame inflation,” Franco said. “Meanwhile, vacation plans softened further as rising prices took their toll. Looking ahead over the next six months, consumer spending and economic growth are likely to continue facing strong headwinds from further inflation and rate hikes.”

The Headline Index ticked down by 4.5 points in June to 98.7, its lowest measure since February 2021. June’s Present Situation Index, which is based on consumers’ assessment of current business and labor market conditions, slipped 0.3 points after a 5.5-point loss in May. The reading for that index stands at 149.1 in June. The Expectations Index, which is based on consumers’ short-term outlook for income, business, and the labor market, slipped 7.3 points to 66.4 in June, its lowest total since March 2013.

Calculated as a three-month moving average (3MMA) to smooth out the volatility, The Conference Board’s Composite Index was 103.5 in June versus 106.5 in May – now declining for a sixth straight month and falling further away from the pre-pandemic high of 130.4 in February 2020.

The Composite Index is made up of two sub-indexes: consumers’ view of the present situation and their expectations for the future. Figure 1 below notes the 3MMA linear trend lines from January 2012 through June 2022 versus the trend lines of all three subcomponents of the index: Present Situation, Composite, and Future Expectations. All three were above the average composite line prior to the pandemic before falling consecutively through February 2021. The surge from March through June of 2021 pulled all three indexes above the composite line once again. But economic uncertainty has since really eroded confidence.

The table below compares June 2022 with June 2021 on a 3MMA basis. The present situation index reading is the only one showing YoY gains, while Expectations is showing the most volatility over the same period. All three indexes are showing declining momentum through June.

The Composite is down 24.8 points when comparing current 3MMA totals to the same 2019 pre-pandemic period. The Present Situation is down 18.9 points, while the Expectations reading is down 28.7 points in June when compared to the same period in 2019. The consumer confidence report includes employment data and purchase plans. These are summarized in the table below.

People found jobs slightly more plentiful in June but were a bit less optimistic about wage increases compared to the month prior. The differential between those finding jobs and those having difficulty was 39.7 in June, up from 39.3 in May. The measure, despite recent fluctuation, remains above the most recent pre-pandemic high but below 44.2 a year ago. The difference between those expecting wages to rise versus those expecting wages to fall is 0.7, down 2.7 points MoM, and down from the recent high of 11.6 last June.

Buying intentions for big-ticket items – cars, homes, and major appliances – were either unchanged or slightly improved, the report said. Rising costs remain the top concern for consumers. Their inflation expectations were mostly unchanged from May’s elevated levels. Major appliance buying saw the largest percentage gain in June, up 7.2 %, followed by autos (6.1%), and home buying, which was unchanged. These recent dynamics and historical movements are illustrated below in Figure 2.

Note: The Conference Board is a global, independent business membership and research association working in the public interest. The monthly Consumer Confidence Survey®, based on a probability-design random sample, is conducted for The Conference Board by Nielsen. The index is based on 1985 = 100. The composite value of consumer confidence combines the view of the present situation and of expectations for the next six months.

By David Schollaert, David@SteelMarketUpdate.com