MARK-TO-MARKET: Consumer optimism takes a big hit in June | Business & Economy – JulieSimba
MARK-TO-MARKET: Consumer optimism takes a big hit in June |  Business & Economy

MARK-TO-MARKET: Consumer optimism takes a big hit in June | Business & Economy

For Wall Street, trying to gauge human emotion is a challenging endeavor. Emotions can’t be easily quantified, and, at times, are often illogical. For most Wall Street analysts and economists, there’s a warm, fuzzy comfort that comes with hard, numerical data. Employment, inflation and economic growth can be calculated, categorized and verified. It all makes sense.

Consumer confidence is one of those emotions that has historically fixed Wall Street for decades. However, its importance is significant. Consumer spending accounts for more than two-thirds of our nation’s economic growth. Simply put, optimism consumers tend to spend their money more freely, providing the fuel for economic growth. But how, and to what extent, can you truly measure optimism from one person to the next?

Released each month by The Conference Board, a US-based provider of economic data and analytics, the Consumer Confidence Index (CCI) tries to quantify that measure. The index has a benchmark of 100. Any level above 100 indicates an optimism by American consumers on their future outlook on jobs, income and the economy. Below 100 conveys pessimism.

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On Tuesday, the CCI was released for June. The index was reported at 98.7, below Wall Street’s forecast of 101 and below May’s level of 103.2. The below-100 level marked a sudden consumer shift from optimism to pessimism, snapping a 15-consecutive month string of 100-plus readings. For perspective, the index’s all-time high is 144.7, set in May 2000. The all-time low is just 25, set in February 2009 during the height of the sub-prime mortgage crisis.

The declining state of confidence is also reflected in the University of Michigan’s monthly Consumer Sentiment Index. The Consumer Sentiment Index was just reported at its lowest level since the index was created back in the late 1940s.

For much of 2020 and 2021, consumer confidence was heavily influenced by the pandemic. As the number of reported cases of COVID spiked, consumer confidence tended to decline. Likewise, as the number of cases fell, confidence rose. But for the past 12 months, consumer optimism has been following a different trend — inflation. Since June 2021, the CCI has been steadily declining.

In February 2020, inflation was reported at just 1.7%. Today, that rate has soared to 8.6%, the highest since 1981. According to a recent study by Moody’s Analytics, higher inflation is costing the average American family an extra $5,520 per year in added costs.

To help get this inflation under control, the US Federal Reserve has begun to aggressively raise interest rates. But these places even greater strain on consumers, business and, ultimately, the US economy. Wall Street has a growing concern the economy will dive into recession. The benchmark S&P 500 stock index just ended its worst six-month performance since 1970.

Throughout the decades, the American consumer has proven to be a highly resilient entity. But high inflation, stressed family budgets, declining retirement accounts and concerns over recession are starting to pile up. And, as we’re starting to see, that resiliency is not without limit.

Mark Grywacheski is an expert in financial markets and economic analysis and is an investment advisor with Quad-Cities Investment Group, Davenport.

Disclaimer: Opinions expressed herein are subject to change without notice. Any prices or quotations contained herein are indicative only and do not constitute an offer to buy or sell any securities at any given price. Information has been obtained from sources considered reliable, but we do not guarantee that the material presented is accurate or that it provides a complete description of the securities, markets or developments mentioned. Quad-Cities Investment Group LLC is a registered investment advisor with the US Securities Exchange Commission.

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