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US Recovery Will Be Difficult, If US Consumers Tighten the Purse
The US economy is the most resilient among major countries, rebounding faster than anyone after an economic crisis, which we saw after the 2008-09 crisis. The reason for that has been the US consumer, which is quite resilient as well. The US consumer is the strongest in the globe. The consumer sentiment reports have shown that in recent months the sentiment has rebounded, after diving lower in April. But, yesterday’s report showed that the the US consumer is expecting the situation to get worse than where it is now. This is a bad sign, especially for the USD. Below is the report for July:
US CB July Consumer Confidence Report
- July consumer confidence 92.6 vs 95.0 expected
- June consumer confidence was 98.1 (revised to 98.3)
- Present situation 94.2 vs 86.2 prior (prior revised to 86.7)
- Expectations 91.5 vs 106.0 prior (prior revised to 106.1)
- The percentage of consumers expecting business conditions will improve over the next six months declined from 42.4 percent to 31.6 percent
- Those expecting business conditions will worsen increased from 15.2 percent to 19.3 percent
The expectations component is an important leading indicator. You wonder how much the drop has to do with uncertainty about unemployment benefits and the backslide in the virus, but that index is certainly not painting a V. Only the US consumer will save the US economy, so if US consumers tighten their purses, then the economic recovery will be difficult.
Although, the Trump Government is expected to pass another fiscal stimulus package, which will likely give out another cheque, this time of $1,200 to people. This will help improve the consumer sentiment for a few more months, until elections I assume.
Commentary in the report:
“Consumer Confidence declined in July following a large gain in June,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index improved, but the Expectations Index retreated. Large declines were experienced in Michigan, Florida, Texas and California, no doubt a result of the resurgence of COVID-19. Looking ahead, consumers have grown less optimistic about the short-term outlook for the economy and labor market and remain subdued about their financial prospects. Such uncertainty about the short-term future does not bode well for the recovery, nor for consumer spending.”
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