US Consumer Confidence Falls in July on Concerns Over Employment Outlook

The Conference Board’s measure of U.S. consumer confidence followed June’s sharp decline with a further easing in July, falling to 50.4 from the prior month’s 54.3 (revised from 52.9). Market expectations were for a slightly smaller drop in the index to 51. The labour market differential (those saying jobs are “plentiful” minus respondents saying jobs are “hard to get”) deteriorated to -41.5 from the prior month’s -39.2 reading (revised from -40.5 previously), its lowest reading since March. This result may reflect the disappointing private employment reports in May and June that followed the surge seen in April as well as the persistently elevated level of initial jobless claims.

The decline in consumer confidence in July from the previous month reflected weakness in both components. The “present situation” measure fell to 26.1 from 26.8 in June, while the “expectations” component dropped to 66.6 from 72.7, representing the lowest index levels since March and February of 2010, respectively.

The outlook for employment deteriorated in both the “present situation” and “expectations” components. For the former, the “jobs hard to get” index rose to 45.8 from the 43.5 seen in June while the “jobs plentiful” index held steady at 4.3, pushing the employment differential down to -41.5 from the previous month’s –39.2. The “expectations” component saw the “more jobs” index fall to 14.3 from 16.2 in June, with the “fewer jobs” index rising to 21.1 from 20.1. Consumers’ views on business conditions also worsened, with those saying the present situation was “bad” increasing to 43.6 from 41.0 (although those saying conditions were “good” rose to 9.0 from 8.4). Expectations for conditions to improve six months from now fell to 15.9 from 17.1, while expectations for conditions to worsen rose to 15.7 from 13.9 last month.

In a separate release this morning, May’s S&P/Case-Shiller 20-City Composite measure of U.S. house prices increased for the second consecutive month, rising 0.5% on a seasonally-adjusted basis from April, following the revised 0.6% increase (initially reported as 0.4%) in the previous month. On a year-over-year basis, the unadjusted headline index beat market expectations for a strong 3.9% increase by rising 4.6%, the largest annual gain since August 2006. While this report appears positive -- May was the first month following the expiration of the homebuyers’ tax credit -- the release noted that “a broader look at home price levels during the past year still dose not indicate that the housing market is in any form of sustained recovery” and that “the housing market has really only stabilized at this lower level.” The unadjusted index sits 29.1% below the peak in prices reached in July 2006.

The fall in consumer confidence in July continues to reflect heightened concerns about the outlook for labour market and the economy in general. This deterioration suggests that consumer spending could be constrained unless the labour market sees further improvements. The elevated unemployment and the continued weak level of activity in the housing market lead us to continue to expect monetary conditions to remain highly accommodative with the Fed funds target staying in its 0% to 0.25% range into next year.

Information contained in this report has been prepared by the Economics Department of RBC Financial Group based on information obtained from sources considered to be reliable. While every effort has been made to ensure accuracy and completeness, RBC Financial Group makes no such representation or warranty, express or implied. This report is for information purposes only and does not constitute an offer to sell or a solicitation to buy securities.