Consumer confidence plummeted in August with consumers’ outlook becoming increasingly pessimistic. The Conference Board’s Consumer Confidence Index fell 25% (14.7 points) in August to 44.5, with a marked decline in the expectations index, down 31% (22.9 points) to 51.9. 

Consumers’ expectations for business conditions deteriorated, with the proportion of respondents expecting “business conditions to improve” over the next six months decreasing 6.1 percentage points to 11.8% and those expecting “business conditions to worsen” increasing 8.5 percentage points to 24.6%.  Consumers were also pessimistic about the outlook for the job market, with the proportion of respondents anticipating “more jobs” in the months ahead down 5.5 percentage points to 11.4% and those expecting “fewer jobs” up 9.3 percentage points to 31.5%. In addition, fewer consumers anticipate their income will rise over the next six months, down 1.6 percentage points to 14.3%. In combination, these factors are likely to impact on spending decisions and slow economic growth.

The shift in the Conference Board’s Consumer Confidence Index parallels the results of the University of Michigan’s Consumer Sentiment Survey, which decreased 12.6% (8.0 points) to 55.7. The expectations index was down 15.4% (8.6 points) to 55.7 and the current conditions index fell 9.4% (7.1 points) to 68.7.  

The University of Michigan attributed the recent surge in pessimism to “…. lost confidence in the ability of government to enact policies that would counteract the growing threat of a renewed recession ….” and suggest that “…. consumers (are) increasingly convinced that a renewed recession is likely to occur.” While the NAHB has increased our expectations of the probability of a recession to 35% from 20% a few weeks earlier, we believe it is still an unlikely outcome. Despite the weak consumer confidence, we expect economic activity to show moderate improvement over the remainder of the year, gain momentum in 2012, before reaching a robust recovery speed in 2013.