The sunny weather in July isn’t doing much for consumer sentiment – confidence is at the lowest level of the year, according to a new index compiled by Thomson Reuters and the University of Michigan.
All sorts of factors are to blame: The hiring and wage deceleration in the U.S., the ripple effect of the malaise in Europe, the threat of a fiscal cliff of higher taxes and spending cuts along with the slowing gross domestic product reported Friday, and more.
The monthly gauge in sentiment slipped 1.2% to 72.3 in July from 73.2 the previous month. Compared to a year ago, however, consumer confidence is up 13.5%. How consumers feel largely dictates how they spend, which makes up for the vast majority of U.S. economic activity.
“The good news is that consumers do not expect the economic slowdown to prompt an economy-wide recession,” according to the report. “The bad news is that consumers do not expect the pace of economic growth to revive job and income prospects.”
Nearly half of consumers said their financial situation had worsened, blaming lower incomes and higher prices, largely for food. Only 10% said they expected pay raises next year to reflect inflation growth. Half said they don’t expect the 8.2% jobless rate to change in the next 12 months.
The index measuring consumer expectations for the next six months fell to 65.6 from 67.8 in July. But at the moment, they’re feeling pretty good. The gauge for current conditions improved to 82.7 from 81.5 as manufacturers and retailers offer discounts on big-ticket durable goods.
A government report Friday found that spendthrift consumers and investment-shy businesses caused U.S. economic growth to slow again in the second quarter. GDP expanded at an annual rate of 1.5% from April through June, down from 2% the previous quarter and 4.1% during the last quarter of 2011.