Consumer confidence continued to fall in July to the lowest level since February 2021 amid inflation angst and an economic slowdown, the Conference Board reported on Tuesday.
The top-line number fell to 95.7 from 98.4 in June, driven by broad declines across all components. But there was good news: Inflation expectations for the next 12 months dropped to 7.6% on average in July, down from 7.9% previously, likely because of a sharp drop in gasoline prices.
The labor differential index—which measures the difference between the jobs that are plentiful and jobs that are hard to get—declined to the lowest level since May 2021, reaffirming the reversal in a labor market that has been starting to loosen up. The decline, however, has been moderate as labor demand continued to outpace supply.
The future looked less optimistic in July as the sub-indexes for business conditions and spending all declined on the month.
Lower-income households have been bearing the brunt of inflation pressure and have had a significant drop in real income. Households that earned less than $50,000 a year continued to report lower confidence than the ones that earned more than $50,000.
But the gap in confidence between the two income levels has shrunk substantially in the past year mainly because of the significant drop in confidence from households that earn more than $50,000 a year.
New home sales
Sales of new homes fell by 8.1% in June, more than the market expectation of a 5.9% drop. There were only 590,000 new homes sold on the month on an annualized pace. May’s number was revised downwardly, showing a 6.3% increase instead of a 10.7% gain.
Sales continued to stay on a downward trend as mortgage rates surged. In the first half of the year, new home sales dropped by 29%.
The number added to the sharp pullback of the housing market after running hot in 2020 and early 2021.
We expect the worst won’t appear until late next year when the chance of a recession nears 100%. But we most likely won’t see the same type of robust growth like we did after the sharp downturn in 2020 because any potential rate cut by the Federal Reserve would be a lot smaller because of sticky inflation.