June Consumer Confidence Preview
June Consumer Confidence is expected to fall yet again with gasoline and food prices rising against a still-plunging housing market and a sharp uptick in unemployment. Consumer Confidence came in at 57.2 in May and is expected to fall to 56 in the June data, which would be the lowest level since a 55.8 reading in Jul-94.
The loss of home value, even for those with no intention of selling, is beginning to look like the reverse of the internet boom wealth effect: most families’ most valuable asset is losing that value at a pace not seen previously. That’s likely to have a negative effect on consumer spending in much the same way that the loss of the internet boom’s wealth brought down consumer spending.
Just as consumer spending expanded with blistering home price increases from 2002 until 2007, it likely will contract as those effects are reversed at a rapid pace (a nationwide Ofheo home price index shows Q1 2008 prices falling on an annual basis for the first time since 1992, when it began keeping records). Consumer spending may not look as if it is falling, because prices are higher, but other data (manufacturing, car sales, travel, etc.) are bound to show a slowdown.
Little needs to be said about food prices; the basis for most finished food and grains has been spiraling upward for months and Midwest flooding promises to exacerbate this situation. The Saudis’ promise to pump more oil has more than been reversed by the loss of supply from Nigeria.
The employment situation — both the Initial Jobless Claims and Nonfarm Payrolls — are currently skirting recessionary territory, a trend that started last summer in the Claims data. Nonfarm Payrolls peaked in Oct-05, but the downward trend started accelerating in Oct-07.
Expect Consumer Confidence to continue to fall until at least one of these markets/data sets starts to level out.