Consumer Confidence Pulls Back in August
The Conference Board's Consumer Confidence Index® pulled back in August after two months of improvement. The index dropped to 106.1 from July's downwardly revised reading of 114.0. This month's reading was worse than expected, falling far below the 116.0 forecast.
The Conference Board Consumer Confidence Index® declined in August to 106.1 (1985=100), from a downwardly revised 114.0 in July. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—fell to 144.8 (1985=100) from 153.0. The Expectations Index— based on consumers’ short-term outlook for income, business, and labor market conditions—declined to 80.2 (1985=100) in August, reversing July’s sharp uptick to 88.0. Expectations were a hair above 80—the level that historically signals a recession within the next year. Although consumer fears of an impending recession continued to recede, we still anticipate one is likely before yearend.
“Consumer confidence fell in August 2023, erasing back-to-back increases in June and July,” said Dana Peterson, Chief Economist at The Conference Board. “August’s disappointing headline number reflected dips in both the current conditions and expectations indexes. Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular. The pullback in consumer confidence was evident across all age groups—and most notable among consumers with household incomes of $100,000 or more, as well as those earning less than $50,000. Confidence held relatively steady for consumers with incomes between $50,000 and $99,999.”
Peterson added: “Assessments of the present situation dipped in August on receding optimism around employment conditions: fewer consumers said jobs are “plentiful” and more said jobs are “hard to get.” Hard data confirm that employment gains have slowed, overall wage increases are less generous compared to a year ago, and the average number of weeks of unemployment is ticking upward. Business conditions in August were little changed from July, but still somewhat lower than in June. When asked about current family financial conditions (a measure not included in calculating the Present Situation Index), the share of respondents citing a “good” situation fell, and those citing “bad” conditions rose, signaling concerns about family finances presently.”
“Expectations for the next six months tumbled back near the recession threshold of 80, reflecting less confidence about future business conditions, job availability, and incomes. Consumers may be hearing more bad news about corporate earnings, while job openings are narrowing, and interest rates continue to rise—making big-ticket items more expensive. Notably, expectations for interest rates jumped in August after falling two months ago. Also, the outlook for stock prices fell and average 12-month inflation expectations ticked up. The measure of expected family financial situation, six months hence (not included in the Expectations Index) softened further.”
“The proportion of consumers saying recession is ‘somewhat’ or ‘very likely’ ticked down again in August but remain elevated at 69.0%. These soundings likely reflect ongoing uncertainty given mixed buying plans. On a six-month moving average basis, plans to purchase autos and appliances continued to trend upward but plans to buy homes—more in line with rising interest rates—continued to trend downward. The dip in overall confidence notwithstanding, consumer plans to go on vacation, especially abroad, leapt upward in the month and slightly exceeded August 2022 readings, suggesting a continued penchant for spending on services.”
Background on the Consumer Confidence Index
The Conference Board Consumer Confidence Index measures the consumers attitudes and confidence in the economy, business conditions, and labor market, with higher readings indicating higher optimism. The general assumption is that when consumers are more optimistic they will spend more and stimulate economic growth. However, if consumers are pessimistic then spending will decline and the economy may slow down. The index is based on a 5 question survey, with 2 questions related to present conditions and 3 questions related to future expectations. The survey began in 1967 and was conducted every two months but changed to monthly reporting in 1977, which is where our data begins.