Conference Board Consumer Confidence: The China syndrome

American consumer confidence unexpectedly slipped in June dragged down by the unsettled and escalating trade dispute with China.

As President Trump heads to a meeting with Chinese leader Xi Jinping at the G-20 summit in Japan next week the conditions of the two economies are an important backdrop to negotiations that will bear directly on global growth for the next year.

The Conference Board’s consumer confidence index declined to 121.5 in June from April’s revised 131.3. A much more modest drop to 131.2 had been predicted.   “The escalation in trade and tariff tensions earlier this month appears to have shaken consumers’ confidence,” wrote Lynn Franco, Senior Director of Economic Indicators in the statement accompanying the release.

It is also possible that the drop in sentiment in June  is a cumulative reflection of the recent weak payroll numbers, 56,000 in February and 75,000 in May.  The June figure will be reported next Friday July 5^th, 185,000 is expected.

Today’s result brought the index back to its lowest level since September 2017.  “Although the Index remains at a high level, continued uncertainty could result in further volatility in the Index and, at some point, could even begin to diminish consumers’ confidence in the expansion,” noted Ms Franco.

The present situation index which gauges consumers’ opinions on current business and labor market conditions fell to 162.6 from 170.7 in May. The expectations index which measures consumers’ assessments for the near-term future for their income and general business and labor market conditions decreased to 94.1 in June from 105.0 the prior month.

This decline is in contrast to the Michigan consumer sentiment survey which showed a preliminary reading of 97.9 in June not far below the 101.4 post-recession high of 101.4 from March 2018 and down from May’s 100.0 score.

The US consumer economy has generally remained strong with wage gains near the top of their decade range and 3.6% unemployment at a 50 year low.  Job creation, though, has declined this year.  The fourth quarter average for non-farm payrolls of 233,000 dropped to 174,000 in the first three months of this year and April and May averaged just 150,000.