The latest report by The Conference Board has revealed a considerable drop in consumer confidence in July. The decline coincides with a massive surge in coronavirus infections throughout several states and reflects a growing wariness of consumers as the pandemic intensifies.
The Conference Board, a non-profit that maintains the U.S. Consumer Confidence Index, found a drop in consumer confidence of over 5 points in July. The index, which rates consumer confidence on a scale of 0-160, showed a decrease in consumer confidence from 98.3 to 92.6. According to MarketWatch, of economists polled, most had expected, on average, a rating of 96, while those polled by Reuters predicted a drop to 94.5. Consumer confidence had dropped to a recent low of 85.7 amid the initial spread of the coronavirus.
The drop in consumer confidence reflects a general unease as coronavirus infections surge throughout the United States. The most significant drops in confidence was in the states of Florida, Michigan, Texas, and California, all of which have been ravaged by a massive influx of infections due to ineffective mitigation efforts or reopening too early.
The drop in confidence is explicitly tied to the short-term future, which is appearing increasingly grimmer as infections in the United States surge. The dip in confidence coincides with interrupted reopening efforts, unmitigated unemployment, and the looming expiration of the CARES act, which has left many unemployed workers with drastically reduced spending power.
"Consumers have grown less optimistic about the short-term outlook for the economy and labor market and remain subdued about their financial prospects," said Lynn Franco, a senior director at The Conference Board. "Such uncertainty about the short-term future does not bode well for the recovery, nor for consumer spending."
The drop in consumer confidence is just one of many metrics warning of a second economic slump. Major stock indices such as the Dow Jones Industrial Average (NYSE: DIA) and Nasdaq Composite (NYSE: QQQ) have spent most of the week down so far on news of negotiations between congressional Democrats and Republicans stalling, with a potential CARES act replacement still some ways off. While markets popped during trading Wednesday, major indices still being in the red for the five-day period leaves much to be desired.
The current lack of any comprehensive infection mitigation efforts at the federal level, as well as delays in the implementation of new stimulus measures, or implementation of a weak replacement measure that does nothing to address reduced consumer spending power, will only cause consumer confidence to drop further, and will likely do substantial harm to the economy itself.
The recent push by many members of Congress, including many Republicans, to revise the pending HEALS act could serve as a silver lining, however. The mounting opposition could help produce a bill that better addresses the reality of the economic situation, such as restoring the $600 unemployment bonus or at least reducing the deep cut to the payments proposed in the initial bill. Any efforts to produce a better stimulus measure could help drive consumer confidence up and drive consumer spending, which in turn would help drive economic recovery.