Washington, DC
CNN
—
Americans felt more pessimistic about the economy in August, following two straight months of growing confidence.
The Conference Board’s Consumer Confidence Index, which gauges Americans’ attitudes towards the economy and job market, fell to a reading of 106.1 in August, down from 114 in July, reversing the improvements made in the summer.
The falling optimism was mostly due to inflation worries. Consumers’ expectations of economic conditions in the coming month declined sharply.
“Consumer confidence fell in August 2023, erasing back-to-back increases in June and July,” said Dana Peterson, chief economist at The Conference Board, in a release.
“August’s disappointing headline number reflected dips in both the current conditions and expectations indexes. Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular.”
Gas prices have risen in recent weeks and student loan repayments resume in October, which could also weigh on consumer mood. The busy Labor Day holiday, coupled with Hurricane Idalia’s threat of taking gasoline refinery facilities offline, could push up gas prices and overall inflation further.
The University of Michigan’s consumer survey last week also showed a deterioration in Americans’ attitudes toward the economy in August, though at a more subdued pace, according to a final reading.
Federal Reserve officials have emphasized that long-term inflation expectations remain in check. But if inflation stays stubbornly high for longer than expected, US consumers could get used to what they perceive to be permanently higher prices. That would make it extremely hard for the Fed to bring inflation back down to 2%.
Consumer attitudes are sometimes a bellwether for spending, which is mainly what economists focus on since consumer spending accounts for about two-thirds of economic output. If consumers feel pessimistic for a prolonged period of time, then they could possibly cut their spending, which would reverberate throughout the economy.
It’s unclear whether the US consumer’s resilience will persist through the end of the year, though Wall Street bankers and Fed economists no longer predict a 2023 recession.
In fact, concerns about the economy have recently evolved to be quite the opposite. Economic growth picked up in the second quarter from the prior three-month period as Americans spent robustly on services, but pulled back on goods purchases.
That surprising strength kept Fed officials on edge in July, when they voted to hike interest rates by quarter point to their highest level in 22 years, according to minutes from that meeting. That’s because the US economy’s strength might not be consistent with 2% inflation, the Fed’s inflation goal.
Fed Chair Jerome Powell said in his keynote speech at the Kansas City Fed’s annual economic symposium last week that the Fed wants to see “below-trend growth.” He stood firmly by the central bank’s 2% target.
But both the economy and job market also remain on strong footing, and that’s helping to keep inflation elevated.
Plus, the Atlanta Fed estimates GDP will grow at an annualized, seasonally adjusted rate of 5.9% in the third quarter, a sharp acceleration from the second quarter’s 2.4% rate. The Commerce Department releases its second estimate of second-quarter GDP growth this week.
This story is developing and will be updated.
