US consumer confidence fell for the third month in a row in July as Americans continue to feel the pinch of inflation and worry about the spectre of a possible recession.
The drop in the Conference Board Consumer Confidence Index in July followed a larger decline in June.
The index now stands at 95.7, down 2.7 points from 98.4 in June. This is its weakest since February 2021.
The Present Situation Index — based on consumers’ assessment of current business and labour market conditions — fell to 141.3 from 147.2 last month. The Expectations Index — based on consumers’ short-term outlook for income, business, and labour market conditions — ticked down to 65.3 from 65.8.
American consumers are feeling especially gloomy as high inflation has blunted their purchasing power and there is increasing talk of the possibility that the US will fall into a recession.
Commenting on the latest figures, Lynn Franco, senior director of economic indicators at The Conference Board, said: “The decrease was driven primarily by a decline in the Present Situation Index — a sign growth has slowed at the start of Q3. The Expectations Index held relatively steady, but remained well below a reading of 80, suggesting recession risks persist. Concerns about inflation — rising gas and food prices, in particular — continued to weigh on consumers.”
“As the Fed raises interest rates to rein in inflation, purchasing intentions for cars, homes, and major appliances all pulled back further in July,” she adds.
“Looking ahead, inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months.”
Retailers are already sounding the alarm, with Walmart on Monday cutting its quarterly and full-year profit guidance, saying inflation is causing shoppers to spend more on necessities such as food and less on clothing and electronics.
Overall though, the economy is sending mixed signals. On one hand, growth appears to be sputtering, home sales are falling, and economists warn of a potential recession ahead. But on the other hand, consumers are still spending, businesses keep posting profits, and the economy keeps adding hundreds of thousands of jobs each month.
In the midst of it all, prices have accelerated to four-decade highs, and the Federal Reserve is desperately trying to douse the inflationary flames with higher interest rates. That’s making borrowing more expensive for households and businesses.
The Fed has to a difficult path to tread, hoping to slow the economy enough to curb inflation, but without causing a recession. Many economists doubt that such a “soft landing” is possible.
Both policymakers and economists are in uncharted territory having no experience in analysing the economic damage from a global pandemic and Russia’s war in Ukraine.
Having largely failed to predict the fast pace of economic recovery from the 2020 pandemic recession, the impact of supply chain bottlenecks, and then surging inflation, their record is not looking good.
There are now fears that the Fed may overreact to quell inflation, push rates even higher, and endanger the economy.
President Joe Biden wants to convince a skeptical public that the US is not heading into a recession, preparing for the release on Thursday of the Commerce Department’s new gross domestic product figures.
Forecasters predict US GDP will be negative for the second straight quarter — an informal signal that the country is stuck in a downturn — and so the Biden administration is pre-emptively telling voters not to judge the economy by GDP or inflation alone.
It says people should look at job gains, industrial output, and other measures that point toward continued growth, even as Americans are downbeat in polls on the economy and Mr Biden.
Republicans are making the economy a key issue for November’s upcoming midterm elections.
The president maintains the economy is just cooling off after a sharp recovery from the 2020 recession caused by the Covid-19 pandemic.
With reporting from The Associated Press
