The Conference Board’s Consumer Confidence Index (CCI) is developing a trend that has investors concerned. It seems Americans aren’t feeling too upbeat about the prospects of their financial situation, and this is reflected in data showing confidence has gone down to a 100.4 in June, from May’s revised reading of 101.3. Expectations had been for the index to fall to 100, so the weak report is pretty much in line with economists’ expectations.
Don't Miss Our Christmas Offers:
- Discover the latest stocks recommended by top Wall Street analysts, all in one place with Analyst Top Stocks
- Make smarter investments with weekly expert stock picks from the Smart Investor Newsletter
Why Consumer Confidence Is Important
The Consumer Confidence Index measures consumer optimism or pessimism about the economy and their financial situation. It is based on a survey of 5,000 households, and the current value of the index is 102.0. The index is important because it provides insights into consumer spending patterns, a major component in economic growth. If consumers are optimistic, they are more likely to spend, which can stimulate a rise in the economy. Conversely, if consumers are pessimistic, they may reduce spending, which can lead to an economic slowdown. Therefore, the Consumer Confidence Index is a key economic indicator that helps businesses, investors, and policymakers evaluate the health of the economy.
Demographic Divisions
According to Dana Peterson, chief economist at the Conference Board, consumers between the ages of 35 and 54 suffered the greatest drop-off in confidence . The one-month slice of data can not reveal a clear pattern among income groups, but economists looking at longer-term trends suggest that wealthier consumers, those making more than $100,000 a year, are more confident about the economy than consumers earning less.
This has been attributed to the wealth-effect; when people increase their wealth, even if their income remains unchanged, their level of confidence rises, and so do their spending habits. However, nearly half of the survey respondents expect stock prices to increase in the year ahead.
Inflation, Interest Rates, and Housing
Inflation expectations for the coming 12-month period tapered to 5.3% from 5.4% the month prior. This is well above where the Fed is trying to steer inflation. One culprit is higher food prices, an understandable negative for consumers’ view of the current economy.
Meanwhile, over the past six months, high interest rates have discouraged both buying and selling of homes and even cars. Purchasing plans for houses were historically low in June. Statistically, this spring was the worst home-buying season in over a decade, all while house prices continue to set new record highs.
On a positive note, the percentage of consumers expecting interest rates to go higher over the next year declined to 52.6%, the lowest since February. Another positive comes from consumers making travel plans. The percentage of people planning a vacation during the next six months has consistently been increasing and remains above last June’s level. Also, Americans are less concerned about a forthcoming recession compared to May.
Key Takeaway
The latest consumer confidence data suggests that Americans are growing even more cautious about the economy, but there are pockets of improvement. This is shown by the relatively modest decline, while at the same time, inflation and interest rate expectations are moving in a positive direction. Even so, high inflation and rising interest rates continue to weigh on consumer sentiment, particularly when it comes to big-ticket purchases like homes and cars.
