Record-High Consumer Confidence Slips

Consumer confidence dipped in July after eight straight months of gains had pushed confidence to a 30-year high, probably responding to the Federal Reserve’s recent interest rate hike, the Conference Board said Tuesday.

The private research group said waning optimism about economic prospects six months from now lowered its consumer confidence index, which attempts to gauge consumers’ willingness to spend, to 135.6 in July from a revised 139 in June. But the group noted that the index remained at historically high levels.

The July dip in confidence might reflect concerns about future job prospects, some tightening in the availability of credit and the Federal Reserve’s small interest rate hike in June, said Lynn Franco, associate director of the board’s consumer research center.

In his Humphrey-Hawkins testimony before Congress last week, Federal Reserve Chairman Alan Greenspan cited the “unsustainable” growth pace of U.S. consumer demand as one of three reasons for the Fed’s decision to raise its federal funds rate one-quarter of a percentage point, to 5%.

The Fed chief told the House Banking Committee that the risk of inflation remains a concern for Fed policymakers as the consumer-driven U.S. expansion continues.

Economists keep track of consumer sentiment because consumer spending accounts for two-thirds of the nation’s overall economic activity.

Greenspan will conclude his semiannual Humphrey-Hawkins testimony to Congress on Wednesday before the Senate Banking Committee. Last week, he did not rule out the chance of more interest-rate hikes this year.

Confidence about current economic conditions actually rose in July to 178.7 from a revised 175 in June. But the Conference Board’s expectations index, reflecting consumers’ outlook for six months from now, fell nearly eight points to 107 in July from a revised 114.9 in June.

The decidedly less optimistic projections were manifested in a drop to 16.4% in the percentage of survey respondents anticipating a pickup in business conditions in July from 18.1% in June, with about three-quarters expecting business conditions to remain the same, the Conference Board said.

Only 16.3% of consumers expected more jobs to be available in coming months, down from 18.4% in the prior survey. The proportion anticipating income gains over the next six months declined to 22.4% from 26.3% in June.

But Franco said she did not foresee a persistent waning of consumer confidence or demand, asserting that “even today’s gung-ho consumers need resting periods.”

In the assessment of current business and employment conditions, 11.6% of consumers surveyed characterized jobs as “hard to get,” in contrast to 12.3% in June.

The portion of respondents who said jobs were abundant rose to 49.8% in July from 47.3% in June.

The survey is based on a representative sample of about 5,000 U.S. households each month, the Conference Board said.