Soft confidence threatens U.S. recovery

The U.S. government has bought itself some breathing room on its financing, but the debate and brinkmanship leading up to the deal has crushed the nation’s already fragile consumer confidence.

Slightly more than half (54%) of Americans say the debate weakened their confidence in the economy, according to the RBC Consumer Outlook Index for the month of August. Survey respondents increasingly feel that the country is “on the wrong track” (76%, up from 63% in July).

The overall consumer confidence reading for August fell 3.5 points to 40.2, and 42% of respondents are now less confident about their own financial situation.

U.S. consumers have been the driving force behind the world’s largest economy over the past decade, so anything that dampens their spirits can have a massive impact on overall growth, both at home and abroad.

August marks the unofficial beginning of the “back-to-school” shopping season, traditionally a strong period for retailers and their suppliers. But the RBC poll found that 40% of parents plan to cut back on their spending this year.

Aside from the debt debate, consumer confidence has been sandbagged by disappointing employment data and poor investment returns as the value of equities, bonds and homes sag.

The RBC survey found that 52% of Americans think that the next 30 days will be a bad time to invest in the stock market, up from 35% last month. That sentiment was probably influenced by the fact that the Dow Jones Industrial Average had fallen by 5% in the days ahead of the RBC survey.

On the jobs front, 31% of respondents said that someone in their household was concerned about losing their job, compared with 25% in July.

The latest jobless report saw a tiny decline in initial jobless claims, which fell by 1,000 to 400,000 for the week ending July 30. In a sign of how bad the employment climate is south of the border, 400,000 new jobless claims is considered good news.

“Altogether, this report and recent trends in claims data suggest that the softness in the labour market may be beginning to subside,” writes Michael Gapen, director, U.S. economic research, at Barclays Capital. “We expect economic activity to improve in the second half of the year, which should result in better labour market conditions. We continue to look for a 50K increase in the July non-farm payroll report [on Friday] and a 75K increase in private payrolls.”

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.