US Consumer Sentiment Worsens in August: "Signs of Weak Consumer Spending and Rising Unemployment"

Possibility of Worsening Consumer Spending and Unemployment Rate After August Increases
If Confidence in Economic Activity Recovery Declines
Growth Stocks May Dominate Financial Markets

[Asia Economy Reporter Minji Lee] Regarding the deterioration of the U.S. Conference Board Consumer Confidence Index in August, opinions have emerged that it should be interpreted as a signal of sluggish consumer spending and rising unemployment. Additionally, on the 29th, Meritz Securities predicted that as confidence in the restoration of economic activity diminishes, the financial market will see a structural shift toward growth stocks.

On August 25 (local time), the U.S. Conference Board announced the August Consumer Confidence Index at 84.8, significantly below market expectations (93). This figure was even lower than April’s (85.7), when consumer sentiment was suppressed due to fears of the COVID-19 pandemic.

[Image source=AP Yonhap News]

The market had expected the consumer confidence index to improve, citing a gradual decline in new and continuing unemployment claims and the rise of the S&P 500 index, which has historically moved in tandem with consumer confidence. However, the index failed to meet market expectations as the agreement on additional stimulus measures was delayed until after September.

Researcher Seunghoon Lee of Meritz Securities explained, “Psychological contraction was significantly more pronounced among low-income groups highly dependent on labor income and households with younger heads of household compared to other groups. While the confidence index for the $50,000+ annual income group fell by only 2.7 points month-over-month, the $15,000?$25,000 income group saw a 32.3-point drop.” The fact that the index was lower than in April also suggests that the presence or absence of stimulus and disaster relief payments greatly influenced consumer sentiment across income brackets.

Accordingly, it is expected that overall personal consumption expenditure will remain sluggish after August, and the unemployment rate in August will rise unexpectedly. The data released at the time also mentioned, “As consumers’ concerns about economic outlook and financial stability increase, consumer spending may contract over the coming months.”

Consumer spending is expected to worsen, especially in general consumer goods and durable goods. In the Conference Board consumer survey, responses indicating plans to purchase automobiles (July 12.5% → August 9.7%) and home appliances (48.2% → 44.8%) within the next six months both declined. Researcher Lee said, “A typical recession-type consumption pattern may emerge, where spending on general consumer goods and durable goods decreases while only essential goods show growth. It is difficult to rule out the possibility that this will be reflected in the August retail sales statistics to be released in mid-September.”

Employment trends are expected to show a slowdown in the increase of employed persons compared to July and a rise in the unemployment rate. In this survey, the proportion of respondents who said it was difficult to find a job rose by 5.1 percentage points month-over-month to 25.2%, while those who said jobs were plentiful decreased by 0.8 percentage points.

Researcher Lee analyzed, “The Conference Board consumer survey focuses on household responses to labor market conditions and is used as a leading indicator for the employment trends announced by the Department of Labor at the beginning of each month. Considering the delay in the return of laid-off workers due to the sharp increase in new COVID-19 cases in June and July, an increase in job-seeking activity is expected to lead to a rise in the unemployment rate.”

Accordingly, in the financial market, it is anticipated that the lack of confidence in the restoration of economic activity will lead to a structural shift toward growth stocks. Researcher Lee said, “Immediately after the release of the Conference Board Consumer Confidence Index on the 25th, the Nasdaq index expanded its gains, while the Russell 2000, which has a high weighting of sensitive sectors such as industrials, materials, and energy, turned downward. Considering that the Russell 2000 performed well in early August, this appears to reflect both expectations and disappointments regarding the restoration of economic activity.”

This content was produced with the assistance of AI translation services.