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US consumer confidence plunges in September: Conference Board

H.S. Borji
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US consumer confidence declined sharply in September after reaching a nearly seven-year high the previous month, as a weaker appraisal of the current situation and a less optimistic view of future growth weighed on sentiment.

The Conference Board’s monthly gauge of consumer confidence decreased in September to 86 from 93.4. Economists forecast a narrower drop to 92.5.
The August reading, which blew past expectations, was the highest since October 2007.

“Consumer confidence retreated in September after four consecutive months of improvement,” said Conference Board director of economic indicators Lynn Franco.

“A less positive assessment of the current job market, most likely due to the recent softening in growth, was the sole reason for the decline in consumers’ assessment of present-day conditions. Looking ahead, consumers were less confident about the short-term outlook for the economy and labor market, and somewhat mixed regarding their future earnings potential. All told, consumers expect economic growth to ease in the months ahead.”

The present situation index declined to 89.4 from 93, while the barometer of expectations plunged to 83.7 from 93.1. Consumers were less optimistic about current business conditions and were less likely to agree that the outlook would improve over the next six months.

The outlook on the labour market also declined, as 15.2 percent of respondents said they anticipate more jobs in the months ahead. That was down from 17.8 percent who said the same in August.

Consumer confidence had been gradually improving in recent months in response to an improving jobs market. On Friday the Labor Department is expected to show US employers added more than 200,000 nonfarm payrolls in September for the seventh time in eight months, offering further evidence the labour market continues to strengthen in the second half of the year.

US employers added just 142,000 payrolls in August, snapping six consecutive months of above-200,000 job growth.

The unemployment rate declined 1.1 percentage points in the 12 months through August.

Stronger jobs growth has failed to resonate on the pay scale, as average earnings continue to stagnate. Economists are concerned that persistently low wage growth could dampen consumer optimism in the long-turn, which could weigh on household consumption. Average hourly earnings are forecast to increase just 0.2 percent in September, following an identical increase the previous month.

On Monday the Commerce Department said consumer spending rebounded in August, offering hope household consumption was playing a bigger role in economic growth in the third quarter. The figure corroborated a separate report that was released earlier this month showing retail sales increased 0.6 percent in August.

Consumer spending increased 0.5 percent in August, following an unexpected decline the previous month. Higher personal consumption was driven by a 0.3 percent increase in personal income.

According to government estimates, private wages and salaries rose $34 billion in August, double the rate of the previous month.

Earnings growth will play a determining role in household consumption moving forward. According to several economists, it will also determine the success of the housing recovery, which is bogged down by stricter lending terms and rising average home prices.

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