Wednesday, July 28, 2010

Consumer Confidence Woes

Consumer confidence dipped again in July, landing at its lowest point since February. Two key factors took the hardest hit: The index of consumer attitudes fell even lower than analysts had forecast, and the number of people reporting that jobs are hard to get rose sharply. One in six Americans now expect their income to be lower six months from now.

These kinds of consumer surveys aren’t just a temperature-taking; they have a solid effect on the economy we can expect in the months ahead. Consumers who have a hard time finding work or who expect their incomes to drop aren’t going to be spending a lot of money, and consumer spending constitutes 70 percent of our economy.

Friday of this week will see the release of an even more important figure: the first estimate of GDP for the second quarter. The consensus expectation is that it will be 2.5 percent, down slightly from 2.7 percent in the first quarter. Among other reasons, this number will be important for its effect on consumer attitudes. A stronger-than-expected number can help shore up confidence; a lower one will probably bring it down even further.

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