Consumer confidence slides in June reversing the brightening Spring momentum in the wake of the misguided government shutdown and nasty Winter weather coast-to-coast. This Summer, consumers are considering the impact of increased tariffs (taxes) on imported Chinese goods this Fall, the threat of tariffs (taxes) on goods from Mexico, the possibility of quickly rising global fuel (fuel related) costs if war erupts in the Middle East, and softening U.S. employment forecasts.
Main Street consumers are hearing the words and will surely feel the impact of tariffs when Walmart replaces “Rollback” stickers to “Rollup” stickers this Fall. Reluctant to add more debt by holding off on purchasing big-ticket household appliances, Americans are being forced to beat the tariffs. The reality tariffs are taxes, coming out of the wallets of U.S. consumers, is finally sinking in.
Investors, a few steps ahead of consumers, agree, absent short-term interest rate cuts, the global economy is heading towards a significant downturn or a full blown recession driven by reckless words and misinformed trade policy actions, notes Robert McKinley, Senior Analyst for CardTrak, CardFlash and CardData.
The most preeminent consumer confidence survey, by the Conference Board, reinforces the findings of other consumer surveys this month.
National Consumer Confidence
The Conference Board Consumer Confidence Index declined in June, following an increase in May. The Index now stands at 121.5, down from 131.3 in May, its lowest level since September 2017. The Present Situation Index, based on consumers’ assessment of current business and labor market conditions, and the Expectations Index, based on consumers’ short-term outlook for income, business and labor market conditions, declined significantly in June.
Lynn Franco, Senior Director of Economic Indicators at The Conference Board, explains continued uncertainty could result in further volatility in the Index and, at some point, could even begin to diminish consumers’ confidence in the expansion.
Other Conference Board findings for June: Consumers’ appraisal of current-day conditions declined in June; consumers’ assessment of the labor market was also somewhat less upbeat; consumers were less optimistic about the short-term outlook in June; and consumers’ outlook for the labor market was also less favorable.
National Consumer Sentiment
The preliminary June Survey of Consumers, by the University of Michigan, reports its Index of Consumer Sentiment (overall) dropped more than 2% from May. The Index of Current Economic Conditions is now down more than 3% from one-year ago and the Index of Consumer Expectations declined more than 5% from June 2018.
University of Michigan Chief Economist Richard Curtin says consumers anticipate an average long-term inflation rate of just 2.2% in June, the lowest rate the surveys have recorded since the question was introduced forty years ago.
The sole component of the Sentiment Index that improved in early June was buying plans for large household durables. That improvement, however, was due to consumers favoring tariff induced buy-in-advance price rationales. Overall, the data indicate that real personal consumption expenditures will advance by 2.5% in the year ahead.
Florida Consumer Pulse
After reaching its highest level in 17 years, consumer sentiment among Floridians plummeted 5.3 points in May to 96.4 from a revised figure of 101.7 in April. The last time consumer sentiment dropped more than five points was four years ago, in May 2015.
According to University of Florida Consumer Sentiment Index for May, all five components of its index declined. Opinions of personal finances now, compared with a year ago, decreased 9 points from 97.5 to 88.5, the steepest decline in May’s reading.
Small Business Pulse
The latest small business survey from the National Federation of Small Business (NFIB), reveals small business optimism rose 1.5 points in May, surpassing pre-shutdown levels. Six components in the NFIB’s Small Business Optimism Index improved, three were unchanged, and one dipped. However, the June survey may paint a different picture when it is released July 9th.
The NFIB survey found small business owners reporting capital outlays increased six points to 64%, the highest reading since February 2018. The net percent of owners expecting higher real sales volumes rose three points to a net 23% of owners. A net 16% expect better business conditions, up three points, and 30% say now is a good time to expand, a five-point increase. About 62% reported hiring or trying to hire (up 5 points), but 54% (up 5 points) reported few or no qualified applicants for the positions they were trying to fill.
The year-on-year (YOY) growth rate of consumer revolving debt (97% credit card debt) for April posted at +7.9%, compared to a revised -2.3% YOY for March, and a revised +3.6% YOY for February, according to figures released by the Federal Reserve June 7th.
On a quarterly basis revolving consumer credit grew at an annual revised rate of 1.5% in the first quarter of 2019, compared to a revised annual rate of 0.7% in the first quarter of 2018, according to CardData.
Looking at U.S. revolving consumer credit, on an annual basis, the revised growth rate for 2018 was 3.1%, compared to 5.6% for 2017; 6.8% in 2016; 5.4% for 2015; and 3.9% for 2014. RAM Research projects the annual growth rate for 2019 will end on par with 2018, or around 1.5% YOY.