US Consumer Confidence Index Drops Again Due to High Prices

Prior to the US stock market opening on Friday, July 13th, the University of Michigan reported that the preliminary Consumer Confidence Index for July dropped unexpectedly to its lowest level in eight months.

The index recorded a reading of 66, marking the fourth consecutive monthly decline and the lowest since December 2023, down from last month's 68.2. Market expectations had initially forecasted an increase to 68.5.

The report also indicated that both one-year inflation expectations and five-to-ten-year inflation expectations decreased from 3.0% to 2.9%. Director of the survey, Joanne Hsu, noted that despite the slowdown in inflation expectations, consumers remain discouraged by persistently high prices.

Hsu added, "Nearly half of the respondents indicated that high prices are eroding their standard of living, comparable to the highest levels reached two years ago."

The US official CPI report released on Thursday showed a seasonally adjusted CPI monthly rate of -0.1% for June, the first negative reading since May 2020, suggesting that overall prices have been rising over the past four years, with the decline in inflation reflecting a moderation in the rate of increase.

However, following the release of the PPI on Friday, analysts from Morgan Stanley and Kaye Macro revised down their expectations for core PCE inflation. If this critical inflation data can slow as anticipated, the Federal Reserve may cut interest rates for the first time at the end of the third quarter.

It is noteworthy that there has been a cooling trend in the labor market, which has been a driver of consumer spending recently, with the unemployment rate rising to 4.1% in June, the highest since the end of 2021. If this trend continues, it could help temper inflation expectations.

In the University of Michigan's report, both the Current Conditions Index and the Expectations Index also declined from the previous month. The Current Conditions Index fell from 65.9 to 64.1, the lowest since December 2022, while the Expectations Index dropped from 69.6 to 67.2, the lowest in eight months. Previous market expectations were for rebounds to 66.3 and 69.8, respectively.

Of note, the index for the buying conditions for durables dropped to its lowest level in over a year, indicating deteriorating consumer perceptions of future financial conditions.

The report mentioned that the upcoming US presidential election in November could negatively impact consumers' economic expectations. Hsu wrote, "As the election approaches, consumers are feeling significant uncertainty about the economic outlook."

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