Labor-market weakness continues to weigh on the mood of the U.S. consumer, as evidenced by the July consumer confidence report from the Conference Board, released July 29. The index dropped to 76.6 in July from 83.5 in June. Expectations led the decline, falling to 86.4 from a revised 96.4 (95.9 previously) on a disappointing jobs outlook. Present conditions fell to 61.9 from a revised 64.2 (previously 64.9). The data were much softer than expected.
The surprise drop in confidence is noteworthy given that this survey tends to be much more influenced by developments in the labor market than the University of Michigan sentiment survey. Specifically, the "jobs plentiful" component dropped to 10.5 from 11.2, which marks the lowest level since December, 1993. In addition, the expectations components for both employment and income continued to moderate as well.
Overall, while the tax stimulus in the pipeline bodes well for a jump in growth in the third quarter, the key question facing the markets is whether this acceleration in growth will be sustainable (i.e. finally encourage sustained job growth). These data will renew concerns about whether the U.S. will be able to shake the current "jobless recovery."
Treasuries shot higher following the report, though early rumors that the data would come up short set the bond market recovery already in motion. Meanwhile, traders hammered U.S. stocks. The initial selling was intense and severe with all the major three indices slumping nearly 1% within minutes after the release.
From MMS International analysts