Consumer Confidence Inches Higher In August

Falling gasoline prices nudged consumer confidence slightly higher in August. The Consumer Confidence Index rose 5.0 points to 56.9. All of the improvement was in the future expectations component, which jumped 11.1 points to 52.8. The present situation index fell in August, reflecting ongoing concerns about the labor market.

Consumer Confidence Inches Higher In August But Remains Low

Few people will celebrate this morning's rise in consumer confidence. The overall index remains exceptionally low and consumers are expressing a great deal of concern about both present and future economic conditions. All the improvement was in the future expectations component, which had plunged in June and July when energy prices skyrocketed. The reversal in gasoline prices in August apparently removed some of this pessimism.

Consumers' assessment of current economic conditions actually declined in August, with the index falling 2.6 points to 63.2. The percentage of households rating current conditions as "good" edged up 0.2 points, while the number rating conditions as "bad" fell 0.4 points. Consumers were a bit more definitive about employment prospects, with the share of households citing jobs as "plentiful" falling 0.5 points to 13.1 percent and the share stating that jobs are "hard to get" rising 1.8 points to 32 percent. The labor differential, which takes the difference between these two, fell 2.3 points to 18.9, which is the lowest it has been since 2003. The recent deterioration in the labor differential, which has plunged 6.7 points in the past three months, corresponds with the recent jump in the unemployment rate and points to further deterioration in coming months.

Buying Plans Show Some Surprising Gains

Buying plans actually picked up in August, with plans to buy appliances rising three points to 31.6 and plans to buy an automobile and plans to buy a home both posting notable increases. Plans to buy an automobile rose 0.3 points to 5.3 percent in August, while plans to buy a home rose 0.5 points to 3.3 percent, which is the strongest reading in six months. The rise in home buying plans is one more piece of news pointing to a possible turn in this key market. Sales of both new and existing homes increased in July.

Consumer Confidence Is Too Low For GOP

Economic policy almost always takes center stage in presidential races and this year is no exception. The Consumer Confidence Index has a pretty good track record for gauging the public's satisfaction or dissatisfaction with the current party occupying the White House. In the past, no political party has retained the White House if the Consumer Confidence Index was below 90 on Election Day. The current reading of 56.9 means that we will have to see a historic rebound in confidence in order for the GOP to hold on to the presidency.

More fundamentally, the still soft consumer confidence figures point to continued struggles in the consumer sector. Lower gasoline prices could provide some real relief but we would need to see prices fall further and remain low through the end of the year.

Wachovia Corporation
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