UK consumer confidence collapsed in April, according to carefully followed Nationwide Building Society data. The figure dropped sharply below its long-term average as the country entered a recession. The news is a reminder of the role that the outlook of the consumer plays in a developed economy and casts a spotlight toward upcoming U.S. numbers, which could show how second half gross domestic product will fare.
The April results of the Conference Board Consumer Confidence Index were not encouraging. Consumers were less optimistic about their short-term prospects. By itself, the data does not mean much. But a poor number for May would be a cause to believe the U.S. economy has slowed considerably.
The other major measure of consumer confidence issued in the United States is the Thompson Reuters/University of Michigan Survey of Consumers. Its April report showed that job growth concerns had halted an advance in consumer optimism. At the time of the release of the information, the Surveys of Consumers chief economist Richard Curtin said:
The main challenge to building a lasting economic recovery is renewed job and income growth as well as reducing uncertainty about future federal tax and spending policies. To avoid the mid-year relapses of the prior two years, it would be best to quickly reduce uncertainty about future tax rates which are now scheduled to increase at the start of 2013. If no decision about bridging the fiscal cliff is made until after the November election, consumers are likely to become more cautious spenders, especially higher income households toward year end, and those delayed spending decisions will become more widespread the closer the election.
No one with any sense would describe his outlook as encouraging, particularly since so many experts believe that the resolution between tax and spending plans at the federal level will not happen until early next year, at best.
Almost every time U.S. consumer activity is mentioned, it is along with a reminder that consumer spending in America is well above 70% of GDP. The next substantial litmus test of spending is not too many months away, although summer is only just about to begin and the all-important shopping season will not start until October. But that spending season still kicks off before the national election is determined, which means it may start off very slowly.
Consumer confidence data will be debated between now and the late fall. Experts will weigh the extent to which a slowing of job creation can effect sentiment. Fuel prices will play a part as well, although they have started to retreat. Housing could be the biggest factor as people continue to watch the value of most homes fall, wiping out more equity.
Looking at all of the factors that go into U.S. consumer confidence figures, it is hard to make a case that the data will be strong. It is easier to make the case that it will be depressing.
Douglas A. McIntyre