June Consumer Confidence: How Bad Can It Get?

June 25, 2008 – In Tuesday’s data, the Conference Board’s Consumer Confidence Index fell by 7.7 index points to 50.4 in June (Chart 1). That followed a May decline of 4.7 index points.

Chart 1. The Consumer Confidence Index. February 1967 through June 2008.

The level of June consumer confidence was the fifth lowest on record. The four months that showed lower readings were December 1974, May 1980 and the first two months of 1992.

The Conference Board said, “Perhaps the silver lining to this otherwise dismal report is that Consumer Confidence may be nearing a bottom.” That’s the historical precedent. Consumers seem to disagree.

The Expectations Index (consumers’ forecasts of the economy six months down the road) fell by 6.3 index points to an all-time-record-low 41.0 in June (Chart 2). In May, this index fell by 2.7 index-points.

Chart 2. Consumer confidence, expectations. February 1967 through June 2008.

In June, consumers’ still judged the economy’s current state to be less dire than their forecasts. At the same time, however, they have been telling us that the economy is sinking fast.

The Present Situation Index fell by 9.7 index points to 64.5 in June, after falling by 7.7 index points in May (Chart 3).

Chart 3. Consumer confidence, present situation. February 1967 through June 2008.

The last time consumers felt this bad about the present was in 2003. Back then, they were troubled by both the 2003 invasion of Iraq and a rising unemployment rate.

Consumer confidence is not a perfect predictor of real consumption trends (Chart 4).

Chart 4. The Consumer Confidence Index and real consumption growth. January 1967 to date.

But, the very low level of June consumer confidence is clearly not a good omen for the consumption outlook.

Suzanne Rizzo