U.S. consumer confidence fell in June amid concerns about the economic outlook, but households remain Optimistic about the labor market It expects inflation to ease over the next year.
A mixed survey released Tuesday by the Conference Board also showed that consumers’ perceived likelihood of a recession over the next 12 months fell this month after rising in April and May.
Fewer consumers plan to buy cars and appliances over the next six months, but more plan to go on vacation. A resilient labor market is driving consumer spending, supporting the economy even as the Federal Reserve implements big interest rate hikes in 2022 and 2023 to tame inflation.
“We believe the gradual decline in confidence is not significant and that there are enough tailwinds to keep consumers spending,” said Oren Krachikin, financial markets economist at Nationwide. “The economy is on track to recover toward normalcy.”
The Conference Board’s consumer confidence index fell to 100.4 this month from a downwardly revised 101.3 in May. Economists surveyed by Reuters had expected the index to fall to 100.0 from the previous reading of 102.0.
The decline in confidence was concentrated in the 35-54 age group, with confidence improving among consumers under 35 and over 55.
While the share of people who believe the November presidential election will have an impact on the economy is lower than at the same time in 2016, politics remains a concern for consumers and is slightly higher than in June 2020, before the last presidential election.
The Conference Board noted that while there were no clear patterns across income groups, confidence remains highest among those under 35 and those earning more than $100,000 a year, based on six-month moving averages.
“Confidence remained in the same narrow range as it has been for the past two years as the strength of the current labor market outlook continued to outweigh concerns about the future,” said Dana Peterson, chief economist at the Conference Board. “But confidence could weaken as the year progresses if any significant weakness emerges in the labor market.”
Labour market resilience
The survey’s so-called labor market gap, derived from data on respondents’ views of whether jobs are plentiful or difficult to find, widened to 24 from 22.7 in May.
The index correlates closely with the unemployment rate in the Labor Department’s jobs report. Labor market conditions have been gradually easing, with the unemployment rate rising to a still-relatively low 4% in May for the first time since January 2022.
Consumers’ 12-month inflation expectations fell to 5.3 percent from 5.4 percent in May. Write-in responses to the survey indicated that rising prices, particularly for food and grocery items, continue to influence consumers’ economic views, the Conference Board said.
The percentage of consumers planning to buy a car in the next six months fell, as did the percentage of consumers planning to buy big-ticket items such as clothes dryers and televisions. Plans to purchase washing machines increased, while refrigerators remained unchanged.
More consumers are planning vacation trips than they did in April, many of them are considering domestic travel and intending to fly rather than drive. There is no strong correlation between consumer confidence and spending.
“Weakening confidence does not bode well for future consumption, but sentiment has been depressed for some time even as households continue to spend,” said Rubeela Farooqui, chief U.S. economist at High Frequency Economics.
