NEW YORK — Consumers are tired of waiting for a turnaround.
This story first appeared in the July 30, 2003 issue of WWD. Subscribe Today.
Concerned about rising unemployment, they drove the monthly consumer confidence index to an unexpected sharp decline in July.
With a turnaround in the labor market still on hold, consumer confidence sank this month, declining a significant 6.9 points to 76.6 in July from 83.5 in June, its lowest level since it reached 61.4 in March and below economists’ expectations of an increase.
The Conference Board’s monthly survey of 5,000 households broke a string of three straight months of increases in the Expectations Index, which tumbled 10 points to 86.4 from 96.4. The Present Situation Index also fell, down 2.3 points to 61.9 from 64.2, its third consecutive dip.
“The rising level of unemployment and sentiment that a turnaround in labor market conditions is not around the corner have contributed to deflating consumers’ spirits this month,” Lynn Franco, director of The Conference Board’s Consumer Research Center, said in a statement.
Saying she was a little surprised with the survey’s reading, Franco said in a telephone interview that expectations are likely to remain weak until the job market becomes more favorable. “It will take a sustained turnaround in labor market conditions in order for a sustained turnaround in confidence as well,” she said.
Unemployment rose to 6.4 percent in June, up from 6.1 percent in May, its highest level since the 6.4 percent in April 1994.
John Lonski, an economist with Moody’s Investors Service, said he was “confused” about the unexpected decline, noting he anticipated an increase of about 2 percent to 85. “This was a shocking drop,” he said.
Lonski said he believed the dip was an aberration, noting it was at odds with other indications of consumer sentiment this month, such as improving sales trends at many chain stores.
Still, he found it sobering: “It reminds us of how the lack of job opportunities threatens consumer spending prospects,” he said, adding that the decline alerts retailers that confidence and the propensity to spend are not rising in a manner that would benefit most stores.
Highlighting consumers’ worries about the labor market, their assessment of current conditions was less favorable than last month. Those rating present business conditions as “bad” rose to 30.4 percent from 28.1 percent. However, those holding the opposite view increased to 16.3 percent from 14.9 percent. Consumers claiming jobs are “hard to get” rose to 33.1 percent from 31.9 percent, while those claiming jobs are “plentiful” fell to 10.5 percent from 11.2 percent.
Consumers’ expectations for the next six months were less optimistic than last month. Those anticipating an improvement fell to 20.2 percent from 23.5 percent. Consumers anticipating conditions to worsen rose to 11.5 percent from 9.2 percent.
The longer-term employment outlook was also less favorable. Consumers anticipating more jobs to become available over the next six months declined to 16.8 percent from 18.9 percent, while those expecting fewer jobs increased to 19.8 percent from 16.9 percent. The proportion of consumers anticipating an increase in their incomes declined to 15.7 percent from 17.1 percent.