PANews Alert: Consumer confidence continues to decline, and US consumer spending is expected to slow significantly in the second half of the year

Zhitong Finance APP has learned that independent research firm Pantheon Macroeconomics stated that the further decline in consumer confidence supports the view that "U.S. consumer spending will slow down in the second half of this year."

The company said that although households’ perceptions of the labor market have improved, weak retail sales and renewed softness in confidence both point to a slowdown in consumption.

According to data released by the Conference Board on Tuesday, the U.S. Consumer Confidence Index fell from 90.2 in July (revised down from the original value of 90.8) to 89.4 in August, below the market consensus expectation of 90.1.

Pantheon analysts Samuel Tombs and Oliver Allen said that the Expectations Index provides a better guide to consumer spending trends than the headline or Present Situation Index. The company noted that the average readings for July and August — 71.1 — compared with the second quarter’s annualized growth rate of 2.2%, indicate that the pace of consumer spending growth will slow in the third quarter.

The analysts said that consumer spending in the first half of this year, especially in the second quarter, was supported by a number of one-off factors, the most notable being a wave of large personal income tax refunds. The refund season ended in May, while higher gasoline prices are now weighing on consumers.

The labor market data provides a more positive signal. The proportion of households reporting jobs as “hard to find” fell from 21.7% to 19.5% in August, while the proportion reporting jobs as “plentiful” rose from 24.4% to 27.0%. This brought the employment differential from 2.7 in July up to 7.5.

However, Pantheon cautioned that this improvement does not necessarily signal a turning point in hiring, as the labor-market-related components of the Conference Board’s survey are often subject to large revisions. The company said that even taking the latest figures at face value, they point to private sector preliminary job creation of only about 25,000 per month, and given potential revisions, the actual growth rate is close to zero.

The company now expects preliminary private sector job creation to be around 66,000, in line with the average level of the previous three months. Pantheon also noted that other recruitment indicators—including regional Federal Reserve bank surveys and job posting measures from Indeed and LinkUp—remain subdued.

The housing market provides another source of weakness. New home sales in July fell 10.5% to 607,000 units from a revised 678,000 in June, though Pantheon noted this data series is highly volatile and the three-month average remains around 650,000 units.

Pantheon said that slow age-eligible population growth due to reduced immigration, a weak labor market, subdued consumer confidence, and a rebound in mortgage rates could all continue to put pressure on new home sales. The company also pointed out that inventories are high — the three-month average inventory as of July equaled 9.1 months of sales, above the long-term average of just over 6 months.

Pantheon said that home builders may respond to the inventory surplus by cutting prices or offering incentives, while scaling back new project starts. Although single-family building permits have stabilized, Pantheon's analysis suggests they will decline again in the coming months.