Consumer confidence declined in August to a three-month low as recent stock market turbulence weighed on Americans’ outlook for the U.S. economy in the coming year.
The University of Michigan consumer sentiment final index for the month fell to 91.9 from 93.1 in July. The median projection in a Bloomberg News survey of economists called for a 93 reading, little changed from the preliminary reading of 92.9. A measure of prospects for the economy over the next 12 months was the weakest since November.
Confidence withered in the second half of the month after U.S. stocks plunged on concerns about the Chinese economy. A resilient labor market and cheaper fuel may nonetheless keep sentiment from slumping, which will bolster consumer spending.
“The stock market decline may be showing up in the data,” Gus Faucher, an economist at PNC Financial Services Group Inc. in Pittsburgh, said before the report. Still, with steady job gains, “We will see generally improving sentiment over the course of 2015, particularly once the stock market settles down,” he said.
The group surveyed 64 more people than usual in August in order to better capture the reaction to the market events, according to Richard Curtin, director of the Michigan Survey of Consumers. Typically, 500 consumers are polled every month.
Estimates of the 63 economists in the Bloomberg survey for the sentiment measure ranged from 90 to 95.5. The gauge averaged 94.6 this year, through July, and 84.1 in 2014.
The Michigan sentiment survey’s index of expectations six months from now dropped to 83.4, the lowest since November, from 84.1 last month. The initial August reading was 83.8.
The gauge of current conditions, which measures Americans’ views of their personal finances, declined to a three-month low of 105.1 in August from 107.2. The preliminary figure was 107.1.
If past stock market corrections are any indication, the August setback in sentiment will be short-lived, Curtin said in a statement, comparing the latest move to a similar slump in 1987 that also was influenced by events abroad.
“Consumers quickly dismissed the 1987 episode since they thought it would have little impact on their own jobs and incomes,” Curtin said. “The same response is most likely to reoccur since consumers continued to report very positive income and job gains in the most recent survey, even after the stock market volatility began.”
Americans expected an inflation rate of 2.8% in the next year, unchanged from July. Over the next five to 10 years, they expect a 2.7% rate of inflation, compared with 2.8% in the previous month.
Other measures of sentiment were improving leading up to the recent global market volatility.
The Bloomberg Consumer Comfort Index rose to a five-week high in the period ended Aug. 23, supported by more positive views of personal finances and the buying climate. Survey interviews largely were completed prior to the slump in world equity markets over the past week.
The Conference Board’s consumer confidence index climbed more than forecast in August to the second-highest level in eight years as Americans held more favorable views of the labor market. The cutoff date for the survey was Aug. 13, before the recent stock market sell-off.
Federal Reserve policymakers are gauging the impact of financial market developments as they weigh when to raise the benchmark interest rate for the first time since 2006.
New York Fed President William Dudley told reporters after a briefing Aug. 26 that the sentiment index would be the first economic indicator “where you might start to see maybe a little bit of an effect” from the market fluctuations. The upheaval has made the case for announcing an interest-rate increase at the officials’ Sept. 16-17 gathering “less compelling,” he said.
Payroll growth has been a bright spot for Fed officials judging the health of the domestic economy. The economy grew more than previously estimated in the second quarter, according to Commerce Department data released Aug. 27. Nonetheless, a surge in inventories also signals such strong growth will be difficult to sustain in the short run.
Gross domestic product, the value of all goods and services produced, rose at a 3.7% annualized rate, exceeding all estimates of economists surveyed by Bloomberg and up from an initially reported 2.3%.