Contradictory reports make U.S. consumer confidence unclear…
Words like ‘variable’ and ‘mixed’ are usually used to describe the weather. These days, they can also be used to describe U.S. consumer confidence. While the economy keeps growing overall, the combination of rising gas prices, a static job market and a potential housing bubble has left the U.S. consumer somewhat puzzled. Recently, a post on our site outlined an August 2007 RBC Cash Index survey which compared consumer confidence changes and indicated a rebound in August from June / July’s pessimistic outlook. But just a few weeks later the exact opposite results were reported by a Reuters / University of Michigan Survey of Consumers which showed a sharp fall in consumer confidence from the previous month.
The Reuters / University of Michigan Survey of Consumers said its preliminary reading on consumer sentiment in August was 83.3, well below a median forecast of 88.0 and a sharp fall from the previous month’s final reading of 90.4. The data was released just hours after the Federal Reserve cut its primary discount rate, or the rate the central bank charges commercial banks to borrow money, by half a percentage point. The Fed said the downside risks to economic growth had increased “appreciably.”
The unexpectedly weak reading in consumer sentiment backed a view that volatile swings in financial markets, including a steep fall in stock prices since mid July, are starting to dampen the mood of consumers. The survey also gave more ammunition to those arguing that the Federal Reserve is likely to drop interest rates next month, or possibly even earlier, to calm financial markets and limit downside risks to the economy.