Consumer confidence sees bubble-sized drop
A July poll shows state residents’ optimism about their financial future taking its biggest hit since Great Recession
The Federal Reserve’s strategy to cool inflation and tame exuberant spending is working.
Californians’ views of their financial future in July took their biggest drop in nearly 14 years. You know, back when the last bubble burst into the Great Recession.
My trusty spreadsheet analyzed The Conference
Board’s monthly polling of shoppers, including a consumer confidence index tracking California.
THE TREND>> A strong job market with its plentiful openings and surging salaries is helping keep consumer assessments of today’s business climate high. But large unknowns, namely the impact of the Fed’s fight against 40-year high inflation, make the future look very cloudy.
Ponder the slice of the optimism index that looks at consumer expectations. It just took its biggest one-year dive since October 2008, falling 35% to 75.3 from July 2021. This crash is a worrisome level of concern as the California view of the future averaged 94 in pre-pandemic 2015-19.
The muddled future stems from soaring fears that attempts to cool inflation could cause a recession, not to mention a stubborn pandemic that won’t go away.
Such skittishness pushed the overall statewide confidence index down for the third consecutive month to 103.2 in July, down from a revised 110.5 in June and 129.3 a year ago. That’s a 7% one-month drop and a 20% drop over 12 months.
So California’s confidence level is now well below the average 113 seen in the five years before the pandemic.
The good news — or the Fed’s target — is that California consumers’ views of current conditions improved in July. This index of today’s business climate was 145 for July, up from 140 a month earlier but below 150 a year earlier. July’s result reflects this summer’s relative economic strength, as this benchmark is just below this measure’s 141 average in 2015-19.
ELSEWHERE>> The Conference Board tracks the nation and seven other states — Texas, New York, Florida, Illinois, Pennsylvania, Ohio and Michigan. California is by no means alone with its fears for the future.
Overall confidence? Fell in three states in July but dropped in all seven over the year. The national index was down 3% for the month and off 24% over 12 months.
Current conditions? Declined in two states in July but dropped in six over the year. The nation was down 4% for the month, off 10% over 12 months.
Outlook? Lower in three states in July but dropped in all seven over the year. The U.S. was down 1% for the month and also sharply lower — 37% — over 12 months.
Archrivals? Texas’ overall confidence fell 2% in the month, decreasing 24% in the year. Florida had a 1% onemonth drop and a 21% drop in a year.
BIG PICTURE>> What’s driving swings in optimism? The Conference Board also asks consumers nationwide about the job market and plans to make major purchases in the next six months …
More jobs? Only 15.7% said “yes” — down from 15.9% a month earlier and down from 25.5% a year earlier.
Buy a home? Just 4.4% said “yes” — down from 5.7% the previous month and down from 6.4% 12 months ago. Last time homebuying was less popular was February 2013.
Buy a vehicle? Pollsters found 9.4% saying “yes” — down from 10.6% a month earlier and down from 12.1% a year earlier.
Major appliance purchase? 39% said “yes” — down from 45% the previous month and down from 54% 12 months ago.
Then there’s the latest unnerving trend, inflation. Americans polled expect the cost of living to be 7% higher in a year, down from 7.6% a month earlier and up from 5.6% a year ago.”
As for the stock market, 46% see it lower in 12 months, compared with 44% the previous month and up from 31% 12 months ago.
HOW BUBBLY?>> On a scale of zero bubbles (no bubble here) to five bubbles (five-alarm warning) … THREE BUBBLES!
It’s a juggle. Let’s remember it’s hard for the California economy to move forward with antsy shoppers. But the economy’s biggest woe — inflation — can be cured by a pullback in frenetic spending.
Consider the growing gap between this measure of California consumers’ view of current and future conditions.
For July, my spreadsheet says the view of the future was 48% less rosy than consumers’ assessment of today’s economic conditions. That compares with June’s 35% gap and 23% in July 2021.
Yes, the outlook is often murky. This math shows the human inclination to anxiousness: California’s outlook index has run 7% below confidence in the present economy since 2007.