Not surprisingly, the University of Michigan consumer sentiment index plunged in July.
It’s not a great time to be an American consumer as confidence in Washington’s ability to run the country effectively wanes. No doubt the current debt ceiling debate is doing little to boost consumers’ perception of their representatives.
Today it was reported that confidence fell 7.7 points sequentially to 63.8 in June, the biggest decline since March and the lowest level since March 2009. The expectations component led the decline, dropping 9 points to 55.8 (lowest level since March 2009) and the assessments of current conditions dropped 5.7 points to 76.3 (lowest level since November 2009). This is not a shock to anyone paying attention to the data; the economic drivers of confidence remain very weak.
The remedies required to address the serious fiscal issues facing the U.S., “eating peas” at the President calls it, are likely to impact growth negatively – at least initially. At the same time, politicians’ inability to address the nation’s debt is a serious concern for consumers’ confidence.
The decline in confidence comes on the same day that the New York Empire State Manufacturing Survey's weaker than anticipated. This survey is the first look at factory conditions during the month of July. Within the survey, the employment indicators weakened significantly; the employment index barely stayed in expansionary territory, falling from 10.2 to 1.1 in July. The average employee workweek (hours) index fell sharply from -2 to -15.6.
Looking at the overall set up, confidence and manufacturing data are decidedly bearish. This bearishness is being compounded by a volatile political climate. The uncertainty is hurting business confidence, which is discouraging hiring and impairing income growth. While I would like to strike a more positive tone this Friday afternoon, the preponderance of the evidence suggests that confidence will remain in the doldrums for, at least, the immediate term.