The decline in the Conference Board’s consumer confidence survey, released yesterday, is an outlier relative to other recent data that has beat expectations. Nonetheless, it serves as a reminder of how fragile the recovery is.
C onsumer confidence declined in August according to the Conference Board. This result underscores that in the current environment, it does not take much to shake consumers’ resolve.
Over the past two years, consumer confidence has swung wildly.
In 2010, the European debt crisis first burst onto the scene and, together with soaring food prices, was the likely culprit behind the pullback in consumer spending that year. In 2011, consumers were subjected to another wave of European stress and the debt ceiling crisis in Washington. The surge in gasoline prices late last year no doubt contributed to this year’s soft patch in household spending and confidence. Weather patterns further confuse the picture – “payback” for a warm winter has depressed economic activity in recent months. A small inventory cycle was also at play.
Our base case is that real GDP growth is likely to be stuck in the 2% range, but even this modest growth forecast will require at least some acceleration in the pace of consumer spending growth. Our main concern is the dismal core capital goods orders figures in recent months, which highlights that the fiscal cliff is taking its toll on business sentiment. Potential gridlock in Washington after the election would mean a prolonged period of corporate cautiousness.