Both the Conference Board and the State Street confidence indexes plummeted in August, with the Conference Board Consumer Confidence Index falling 14.7 points from July, to a reading of 44.5, and the State Street Investor Confidence Index declining by 12.9 points, to 89.6.
State Street’s Present Situation Index also ticked down, to 33.3, from 35.7. More strikingly, the Expectations Index fell to 51.9 from 74.9.
“Consumer confidence deteriorated sharply in August, as consumers grew significantly more pessimistic about the short-term outlook,” said Lynn Franco, director of the Conference Board Consumer Research Center. “The index is now at its lowest level in more than two years [April 2009 = 40.8]. A contributing factor may have been the debt ceiling discussions since the decline in confidence was well underway before the S&P downgrade. Consumers’ assessment of current conditions, on the other hand, posted only a modest decline.”
Consumers’ assessment of present-day business conditions were mixed, with those claiming current conditions are “bad” rose to 40.6% from 38.7% and those describing them as “good” inched up to 13.7% from 13.5%.
The job outlook remains dour, however, with 49.1% saying “jobs are hard to get,” up from 44.8%. Accordingly, those who believe jobs are “plentiful” declined to a meager 4.7%, from 5.1%. Only 11.4% expect more job opportunities to open up by February, down from 16.9%. Nearly a third, 31.5%, expect there to be fewer jobs available, up from 22.2%.
People’s general outlook for the next six months deteriorated also sharply this month, with only 11.8% expecting business conditions to improve, down from 17.9%. Those expecting business conditions to worsen rose to 24.6%, up from 16.1%. Nonetheless, 14.3% think their incomes will rise in the next six months, down slightly from 15.9%.
As far as institutional investors are concerned, “the elevated level of volatility this month took its toll on investor sentiment,” said Harvard University Professor Kenneth Froot, who helped develop the State Street index. “Diminished growth expectations, the downgrade of the U.S. sovereign debt rating and continued difficulties around European sovereign financing all combined to cause institutional investors to reduce their allocations to risky assets. The key question that investors are grappling with is whether elevated levels of stress in the financial system will have real effects on the economy.”
The most pronounced decline in the State Street Investor Confidence Index was evidenced in North America, with confidence decreasing to 88.6, down 13.9 points from July.
“Looking regionally, it is clear that the setbacks this month were felt most strongly by U.S.-based institutional investors,” Froot said. “Typically, a double-digit decline only occurs once a year or so. To keep things in perspective, it should be noted that this month’s 12.9 point decline is not as severe as the 21.7 point decline registered in October 2008. Institutional investors elsewhere are somewhat more optimistic, especially in Asia.”