After reaching a six-year high in July, consumer confidence has fallen for the second straight month, according to the University of Michigan and Thomson Reuters. The Consumer Sentiment Survey’s index declined from 85.1 in July to 82.1 in August to 76.8 in September. Note that this is preliminary figure, with a final index number released on Friday, September 27. Nonetheless, it highlights the fact that these types of surveys tend to react to pocketbook issues, and as such, higher gasoline prices and interest rates have resulted in a moderate decline in overall confidence. Slower job growth might also be a factor.
While measures for current and future economic conditions both declined in September, it was the expectations component that declined the most, down from 73.7 to 67.2 for the month. The index for current economic conditions decreased less dramatically, down from 95.2 to 91.8.
It is hard to know exactly what the survey respondents were thinking when answering these questions, but the forward-looking measure has now fallen for the third straight month. In addition to the economic headwinds mentioned earlier, the possibility of fiscal policy confrontations might also be on their minds. Moreover, respondents were more than likely completing this survey with geopolitical uncertainties mounting in Egypt and Syria.
Of course, the real importance of looking at consumer perceptions is the linkage that that may or may not have with consumer spending. With consumption accounting for roughly 70 percent of real GDP, spending is a major key to economic growth. Nonetheless, how consumers respond to surveys is not always correlated with purchasing behavior.
In this case, we learned earlier this morning that consumers did slow their purchases in August, with retail sales numbers up just 0.2 percent. While businesses are somewhat optimistic about higher demand over the coming months, we will closely watch both sentiment and spending numbers moving forward for clues about changes in that outlook. For now, let’s hope that the downturn in confidence is just a pause, as we had seen sentiment rising earlier in the year.
Chad Moutray is the chief economist, National Association of Manufacturers.