Monitoring trends for over 60 years

July 30, 2010

Consumer Confidence Tumbles

Index of Consumer Sentiment
Surveys of Consumers chief
Jul’10 Jun’10 Jul’09 M-M Chng Y-Y Chng economist, Richard Curtin
67.8 76.0 66.0 -10.8% +2.7%
“Scarce jobs and stagnating incomes
Index of Consumer Expectations have been the top concerns of con-
62.3 69.8 63.2 -10.7% -1.4% sumers for some time. What changed
in July was their recognition that the anticipated
Current Conditions Index slowdown in the economy will keep jobs scarce
76.5 85.6 70.5 -10.6% +8.5% for some time, while their uncertainties about fu-
ture prospects were increased by the policies of the
ANN ARBOR. Confidence tumbled in July due to height- Obama administration. Rather than itching to re-
ened concerns about personal financial prospects as well as sume old spending habits, consumers have begun
the overall economic outlook. Income and job prospects to actively embrace a more defensive outlook,
were extraordinarily weak and those bleak prospects have making them more likely to further pare their debt
made consumers more cautious spenders. Rather than the and increase saving and reserve funds. This new
economy gaining strength, consumers now anticipate a defensive posture could result in even slower eco-
slowing pace of growth, and rather than economic policies nomic growth and fewer jobs in the future.”
acting to improve prospects, the policies of the Obama ad-
ministration have increased economic uncertainty among consumers. Overall, the data suggest that the current
slowdown in spending is likely to persist well into 2011 as it reflects a widespread and general realignment of
job and wage expectations. While a double dip is still unlikely, it now has a non-ignorable 25% probability.

Grim Outlook for Personal Finances

Nearly a year after the economic recovery began, the financial situation of consumers has continued to weaken
mainly due to the loss of jobs and work hours as well as stagnating incomes. Half of all consumers reported that
their finances had worsened this July as well as in last July’s survey. The smallest proportion ever recorded in
the sixty year history of the surveys anticipated an increase in their household’s income during the year ahead.
Moreover, eight-in-ten consumers expected no improvement in the unemployment rate during the year ahead.

Consumers sensed a slowdown in economic growth. The backslide meant that six-in-ten consumers judged pros-
pects for the economy unfavorably, and just one-in-three consumers anticipated uninterrupted economic growth
during the next five years. Confidence in economic policies fell to the lowest level in the July survey since the
start of the Obama administration. While the effectiveness of Obama’s policies in creating jobs remained the top
concern, the rising level of federal debt and prospects for higher future taxes have gained a foothold as well.

Consumer Sentiment Index

The Sentiment Index was 67.8 in the July 2010 survey, down sharply from the 76.0 in June, erasing the entire
gain since 66.0 was recorded last July. The Expectations Index, a component of the Index of Leading Indicators,
THE INDEX OF CONSUMER SENTIMENT
declined by 10.7% in July, falling to the lowest level since
March of 2009. The Current Conditions Index also posted a
100
double digit decline, but it remained above last year’s 70.5.
90
80
About the survey
70 The Survey of Consumers is a rotating panel survey based on a nation-
ally representative sample that gives each household in the coterminous
60 U.S. an equal probability of being selected. Interviews are conducted
50 throughout the month by telephone. The 95% confidence interval indi-
Jul-07 Jul-08 Jul-09 Jul-10 vidual months for most percentages are plus or minus 4.7 percentage
MONTHLY DATA 3 MONTH MOVING AVERAGE points.
Richard T. Curtin • Director, Thomson Reuters/University of Michigan Surveys of Consumers • Phone 734.763.5224
Thomson Reuters PR Hotline: 646.223.7222 ext. 1 • http://press.sca.isr.umich.edu