Falling Consumer Confidence Foreshadows Worsening Jobs Outlook

Posted by Michael A. Kamperman on June 30, 2009

The Consumer Confidence Index fell in June to a reading of 49.3 from a reading of 54.8 in May.  The green-shoot crowd expected confidence to continue rising.  Based on an increase in the value of the stock markets and the constant press coverage for green-shoots and an improving economic picture, the decline in confidence in June has come as a cold slapped in the face to those looking for an imminent rebound in the economy.  What I found ominous in the report was the consumer outlook for employment.  The Conference Board stated “the job outlook was also more pessimistic. Those anticipating more jobs in the months ahead decreased to 17.4 percent from 19.3 percent, while those anticipating fewer jobs increased to 27.3 percent from 25.6 percent.”  If this survey is accurate, then the unemployment rate reported for June could approach 10%.  The survey is a measure of attitudes and feelings.  The news coverage in May and June has been positive.  The retrenchment in consumer sentiment can only be traced to further deterioration in the real economy.  The drop is especially significant since people receiving a paycheck had fewer payroll related taxes withheld from their checks.

Access to credit remains as tight as ever for both consumers and businesses.  The credit markets remain broken.  The economy is made up of spending based on access to cash.  Access to cash can come from savings, income, or credit.  As long as credit remains extremely tight the economy has to rely on savings and income.  But with unemployment rising and unemployment benefits starting to run out for those that lost their jobs last summer and fall, incomes are not in a position to pick up the slack for access to credit.  That leaves savings.  The rational response to a deteriorating economy even for those with access to credit is to save more.  Plus, if one cannot qualify for a mortgage or auto loan one does not spend what savings they have for a downpayment.

Washington has gone on a wait and watch approach to the economy.  This week they could get well get a wakeup call when the unemployment data is released. They may seek to demean the data for the unemployment rate and call it once again a lagging indicator.  Fine, but weekly unemployment claims are not a lagging indicator.  The weekly number has to begin to improve before the unemployment rate can improve.  When the economy improves employers first slow down their rate of layoffs.  Then employers have their existing workforce work longer hours.  Finally employers hire and the unemployment rate begins to go down.  The weekly claims number released this week will be part of the July unemployment report.  If that number is above 600,000 again, then we will know the July unemployment report will also be weak.  The credit markets and the economy will not heal on their own in the near term.  Only meaningful intervention from Washington will fix the credit markets within the next few years.