US Consumer Confidence Falls by More Than Forecast in August

US consumer confidence fell by the most in two years as souring views on the labor market, higher borrowing costs and lingering inflation curbed optimism.

(Bloomberg) — US consumer confidence fell by the most in two years as souring views on the labor market, higher borrowing costs and lingering inflation curbed optimism.

The Conference Board’s index fell to 106.1 this month from 114 in July, data out Tuesday showed. The number was below all estimates in a Bloomberg survey, and the decline reversed most of the advance over the previous two months.

The group’s measure of current conditions fell to 144.8, the lowest since November. A gauge of expectations — which reflects consumers’ six-month outlook — dropped to 80.2, leaving it slightly above June’s level.

A gauge of expected inflation a year ahead edged up to 5.8%, marking the first uptick in five months. While consumers have been enjoying some relief from abating inflation, still-high prices continue to weigh on sentiment.

“Consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular,” Dana Peterson, chief economist at the Conference Board, said in a statement.

The yield on 10-year Treasury securities plunged and stocks extended gains after the release of the confidence numbers and a simultaneous Bureau of Labor Statistics report on July job openings, which also fell by more than forecast.

Though economists have been pushing out their recession forecasts on renewed economic momentum, many are still anticipating a downturn in the next year as consumers show signs of weakness under the surface. Some Americans have been turning to credit cards to make ends meet, while others are cutting back on spending altogether.

Respondents to the survey were more negative on the labor market, where resilience has been a key driver of ongoing strength in the economy this year.

Fewer consumers said jobs were “plentiful,” while more said jobs were “hard to get.” The difference between the two measures — a figure watched closely by economists as a gauge of labor-market health — narrowed to the least since April 2021.

What Bloomberg Economics Says…

“Inflation remains elevated and interest rates have surged, putting rate-sensitive purchases out of reach for many households. … We expect consumer spending to run out of steam ahead, reflecting deflating confidence about future job availability and incomes.”

— Eliza Winger, economist

To read the full note, click here

A separate government report due Friday will provide further insights into the direction the labor market is headed. While it’s currently forecast to show the US added the fewest jobs since the end of 2020 in August, that would still mark a healthy pace of payroll growth.

Despite worsening sentiment toward the labor market, the perceived likelihood among respondents of a recession in the next 12 months fell to the lowest level of the year so far, according to the Conference Board.

Still, elevated borrowing costs weighed on confidence in August. Almost two-thirds said they expected higher interest rates ahead, the biggest share since November.

“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,” Peterson said.

–With assistance from Chris Middleton.

(Updates with chart, Bloomberg Economics comment.)

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