WASHINGTON: U.S. consumer confidence dropped to a more than six-year low in August as households worried about the labor market and incomes, casting doubts on the sustainability of the economy’s recovery from the COVID-19 pandemic.
The downbeat survey from the Conference Board on Tuesday overshadowed news that sales of new single-family homes raced to a more than 13-1/2-year high in July. The housing market continues to show strong immunity to the coronavirus crisis, though the second straight monthly decrease in consumer confidence could slow momentum.
The ebb in confidence followed the expiration of a $600 weekly unemployment benefit supplement at the end of July and a flare-up in new coronavirus cases. While new COVID-19 infections have subsided, hot spots remain in some parts of the country.
“Today’s data are telling us that while some lucky workers are able to buy new homes, millions of others are unable to afford life’s necessities and pay the rent especially after the federal government canceled those $600 checks,” said Chris Rupkey, chief economist at MUFG in New York.
“The consumer is the most worried they have been all year which pours cold water on the idea that the economic recovery is sustainable.”
The Conference Board said its consumer confidence index dropped to a reading of 84.8 this month, the lowest since May 2014, from 91.7 in July. Economists polled by Reuters had forecast the index edging up to a reading of 93 in August.
The Conference Board survey’s present situation measure, based on consumers’ assessment of current business and labor market conditions, tumbled to a reading of 84.2 this month from 95.9 in July. The expectations index based on consumers’ short-term outlook for income, business and labor market conditions dropped to 85.2 from a reading of 88.9 in July.
The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, deteriorated to a reading of -3.7 this month from 2.2 in July. That measure closely correlates to the unemployment rate in the Labor Department’s employment report. It has dropped from as high as 38.3 in August last year.
The share of consumers expecting an increase in income fell to 12.7% this month from 14.8% in July and the proportion anticipating a drop increased to 16.6% from 15.8% last month.
Stocks on Wall Street slipped after a three-day rally. The dollar fell against a basket of currencies. U.S. Treasury prices were down.
STRONG HOUSING MARKET
In a separate report on Tuesday, the Commerce Department said new home sales rose 13.9% to a seasonally adjusted annual rate of 901,000 units last month, the highest level since December 2006. New home sales are counted at the signing of a contract, making them a leading housing market indicator.
June’s sales pace was revised upward to 791,000 units from the previously reported 776,000 units. Economists had forecast new home sales, which account for about 13% of housing market sales, gaining 1.3% to a rate of 785,000-units.
The overall housing market has recouped losses suffered when businesses were shuttered in mid-March in an effort to slow the spread of the coronavirus, powered by historically low interest rates. The 30-year fixed mortgage rate is averaging 2.99%, close to a 49-year low, according to data from mortgage finance agency Freddie Mac.
The public health crisis has triggered a migration to low-density residential areas as companies allow employees to work from home. Data last week showed a record jump in sales of previously owned homes in July. Homebuilding and permits for future construction also soared last month, while confidence among homebuilders increased in August to the highest level since December 1998.
At least 28 million people are receiving jobless benefits. Economists, however, say unemployment has disproportionately affected low-wage workers, who are typically renters. But unemployment is spreading to white-collar jobs amid rising bankruptcies, with no end in sight to the pandemic.
In July, new home sales surged 58.8% in the Midwest. They increased 13.0% in the South, which accounts for the bulk of transactions, and rose 7.8% in the West. But sales plunged 23.1% in the Northeast.
The median new house price increased 7.2% to $330,600 in July from a year ago. There were 299,000 new homes on the market in July, down from 304,000 in June. At July’s sales pace it would take 4.0 months to clear the supply of houses on the market, down from 4.6 months in June.
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