NEW YORK — Confidence in the economy faded further in July, according to a monthly survey released Tuesday, amid job worries and skimpy wage growth.
The Consumer Confidence Index came in at 51.4 in July, a steeper-than-expected decline from the revised 54.3 in June, according to a survey by the Conference Board. The decline follows last month’s decline of nearly 10 points, from 62.7 in May, and is the lowest point since February. A reading of 90 indicates a healthy economy - a level not seen since the recession began in December 2007.
That’s at odds with Wall Street’s recent rally fueled by upbeat earnings reports from big businesses such as chemical maker DuPont Co. and equipment maker Caterpillar Inc. That’s because the pumped-up profits are being fueled by cost cuts like layoffs and by overseas sales. Indeed, big companies have shown few signs they’re ready to hire.
“Consumers have a much different view of the economy than the stock market does, and their views matter more to the economy,” said Mark Vitner, an economist at Wells Fargo. The index “tells me the economy is heading for slower growth in the second half. We have low expectations for backto-school.”
Joel Naroff, president of Naroff Economic Advisors, agreed, noting that the fatter profits have shown that companies have been able to squeeze out higher productivity from workers, but that also means that “households are not benefiting.”
The profit picture is “good news for Wall Street but not good for workers,” he added.
Concerns are also rising about the housing market.
While the S&P/Case-Shiller 20-city home-price index released Tuesday showed a 1.3 percent rise in May from April, the homebuyer’s tax credit, which expired April 30, helped pull more buyers into the market. Indeed, the report warned that the recent gains in home prices are not likely to last.
Prices have moved up 4.6 percent in the past year, the data showed. That’s the highest rate since August 2006.
Prices rose in 19 of the 20 metropolitan areas tracked by Case-Shiller in May compared with April.
May’s increase is the index’s largest monthly gain since July 2009 and the second-straight increase after six months of declines. The index is at its highest level since last October.
The consumer confidence survey was taken July 1-21, beginning just before the Standard & Poor’s 500 index hit a nine-month low of 1,022.58 on July 2. It had risen 4.5 percent by July 21 and has since climbed an additional 4 percent as upbeat earnings reports from key manufacturers have made investors more convinced that the economic recovery isn’t stalling as much as they hadoriginally thought.
A rapid, sustainable recovery can’t happen without the American consumer, and the second-straight month of declining confidence after three months of increases is worrisome, economists say.
Economists watch the confidence index closely because consumer spending accounts for about 70 percent of U.S. economic activity and is critical to a strong rebound.
Both components of the index declined. They measure how people feel about the economy now, and their expectations for the next six months.
The index - which measures how Americans feel about business conditions and the job market now and in six months - had been recovering fitfully since hitting an all-time low of 25.3 in February 2009. The index typically falls before the economy slows down, and on the way out of a recession, the expectations component, which accounts for 60 percent of index, rises sharply, said Lynn Franco, director of The Conference Board Consumer Research Center.
“It’s all about jobs. That’s still the primary source of income,” Franco said. “Until we see the pace of job growth pick up and consumers are confident that this is sustainable, we are not likely to see a significant pickup in confidence.”
The Conference Board survey, based on a random survey mailed to 5,000 households, showed that consumers’ assessment of the job market was more negative than the month before. Those claiming that jobs are “hard to get” increased to 45.8 from 43.5 percent, while those saying jobs are “plentiful” remained unchanged at 4.3 percent.
Information for this article was contributed by Stephen Bernard and J.W. Elphinstone of the Associated Press and by Greg Robb of MarketWatch.
Business, Pages 27 on 07/28/2010