The Darkening Mood of US Consumers

Black clouds are forming over the U.S economy as consumer confidence suffers its biggest blow in over four years. The release of the latest CB Consumer Confidence figures underscore the fragility of the purported economic recovery, as the key index fell from 100 to 90.9. The property market was also not immune from the rout as New Home Sales fell from 546k to 482k m/m.

The decline in consumer sentiment has arrived at a point when the U.S Federal Reserve is considering a tighter monetary policy. Subsequently, many are starting to question whether the U.S economy is, in fact, starting to slow along with the current global growth expectations.

It has been suggested by some analysts that the slump in consumer confidence is indicative of the global equity turmoil. However, consumers form their economic expectations over a period of time and it therefore typically lags current events.

Consumer sentiment actually mirrors much of what has been seen in July’s Retail Sales figures which came in significantly below forecasts at -0.3%. It is clear, that for whatever reason, consumers are paring back on their retail spending whilst also altering their overall expectations.

This decline in spending is also in-line with the current trend in US Real Incomes which have fallen in contrast to nominal incomes. According to the last US Census figures, the US Real Median Household Income was $52,250, which is a 3 year change of -2.28%. Despite significant nominal increases, real incomes have continued to come under pressure despite the strengthening labour force data.

Historical Real Median Household Income for the United States