Less Consumer Confidence in August

August 30, 2006 – According to yesterday’s data release, the Conference Board’s consumer confidence index fell by 7.4 index points to 99.6 in August (Chart 1). That was its largest one-month decline since Hurricane Katrina first hit these data in September last year.

Chart 1. The consumer confidence index. January 2000 through August 2006.

However, last year’s Katrina-driven drop was 18 index points – more than twice as severe as August’s falloff. Further, the level of consumer confidence remained relatively robust in August, by broad historical standards (Chart 2). Despite August’s unusually large decline, these data do not currently seem to be indicating unusually high risk of a confidence-led collapse in consumer spending.

Chart 2. The consumer confidence index. February 1967 through August 2006.

Geopolitical turmoil and stubbornly high energy prices might have contributed to August’s consumer confidence decline. In addition, consumers saw less labor demand in August.

The portion of consumers reporting that jobs are currently “plentiful” fell by 4.2 percentage points to 24.4% in August, while the portion reporting that jobs are currently “hard to get” rose by 1.5 percentage points to 21.1% (Chart 3). Thus, the net portion reporting that jobs are currently plentiful fell by 5.7 percentage points to 3.3%.

Chart 3. Consumers' perceptions of current job availability. January 2000 through August 2006.

Despite this August weakening, the labor market has continued to earn relatively high marks from consumers this year, compared to the prior four years. The portion of consumers reporting that jobs were currently “plentiful” was a net negative in all but 3 of the 48 months through December 2005.

Bottom line: To qualify as a serious economic threat, consumer confidence would have to fall further than it did in August.

Suzanne Rizzo