Conference Board Consumer Confidence August Preview: Jobs or Covid?

• Confidence expected to rise marginally in August after July retreat.
• Michigan consumer sentiment just above pandemic low in August
• Payrolls and unemployment improvement forecast to be 1.55 million and 9.9% in August.
• Limited market impact for this important but background economic data.

Consumer sentiment has yet to recover from the second wave of the Covid virus that reversed June’s optimistic outlook despite continuing improvement in jobs and unemployment.

The consumer sentiment index from the non-profit business group, the Conference Board (CB), is forecast to rise to 93 in August from July’s 92.6.  While this will be appreciably above April’s panic low of 85.7, it is a continuation of July’s uncertain retreat from the 98 reading in June.

Conference Board consumer confidence

Reuters

Covid two in July

The rise in Covid cases in several states that began in June precipitated a sharp drop in consumer outlook in July.  In June the Conference Board gauge had jumped to 98 from 85.9 in May and the Michigan index had climbed to 78.1 from 72.3 in May. 

Despite the continuing recovery in payrolls and unemployment in July, 1.763 million and 10.2% from 11.1%, consumer sentiment reversed, to 92.6 from 98 in the CB measure above and to 73.2 in July and then 72.8 in August from 78.1 in June for the Michigan index.

The substantial decline in new Covid diagnoses, hospitalizations and fatalities in August in all localities has not, as yet registered in a better consumer outlook. 

New Covid cases,10 most affected countries

Johns Hopkins University

Retail sales

While consumer sentiment retreated in July retail sales continued their robust post-lockdown recovery.  Purchases rose 1.2% and June’s numbers were revised up to 8.4% from 7.5%. This brings the three month surge to 27.9%, well ahead of the 22.9% plunge in March and April.

Retail sales

FXStreet

August retail sales will be reported by the Commerce Department on September 16 and the Employment Situation Report, non-farm payrolls for short, will be issued next Friday September 4.

Conclusion

The retreat in consumer sentiment in July and August has not been accompanied by a drop in economic activity.  The Atlanta Fed GDPNow track for the third quarter has more than doubled from 11.9% on July 31 to 25.6% on August 18. Retail sales maintained a pace in July that in normal circumstances would be a sign of a healthy consumer economy.

With the incidence of Covid cases continuing to decline it is only a matter of time before that improving outlook is reflected in consumer optimism, if not August, perhaps September.

Consumer sentiment is not market moving information but it will help to set the background for the August data to come.