Uncertainty about the coronavirus results in 'swift drop' in consumer confidence

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Economic data continues to show a mixed economy, with consumers less confident, home sales soaring, and gains in manufacturing.

The consumer confidence index fell for the second month in a row, dropping to 84.8 in August from 91.7 in July, The Conference Board reported Tuesday.

The present situation plunged to 84.2 from 95.9, while the expectations index dropped to 85.2 from 88.9.

Economists polled by IFR Markets expected confidence to rise to 93.0.

The survey showed consumers believed “both business and employment conditions had deteriorated over the past month,” said Lynn Franco, senior director of economic indicators at The Conference Board. “Consumers’ optimism about the short-term outlook, and their financial prospects, also declined and continues on a downward path. Consumer spending has rebounded in recent months but increasing concerns amongst consumers about the economic outlook and their financial well-being will likely cause spending to cool in the months ahead.”
Separately, July new home sales surged 13.9% to a seasonally adjusted 901,000 level, from the upwardly revised June rate of 791,000, first reported as 776,000, according to the Commerce Department.

Economists polled by IFR Markets predicted home sales would total 786,000.

Year-over-year, home sales jumped 36.3%.

"While the news on housing activity is very strong, the Conference Board’s August survey reported declines in consumer confidence, reflecting the dampening impact and high uncertainty of a second wave of the pandemic,” said Mickey Levy, chief economist for the U.S. Americas and Asia at Berenberg Capital Markets. “The declines in consumer confidence were disappointing but not surprising, in light of a second wave of COVID-19. The decline in confidence and heightened uncertainty is reflected in a flattening in economic activity, particularly in the many services sectors. Confidence is expected to be restored as a second wave of the pandemic begins to dissipate.”

Scott Anderson, chief economist at Bank of the West, noted confidence “tumbled” when a rise was expected.

“Taking out the April low and dropping nearly seven points to its lowest level since May 2014, the consensus expectation was for a slight increase in consumer confidence,” he said. “The second consecutive monthly decline was broad-based with the present situation and future expectations indexes falling. The swift drop in consumer confidence highlights the fragile nature of the recent retail sales boom and the urgent need for new government support to keep the U.S. economic recovery going.”

Philadelphia Fed non-manufacturing survey
The region's services sector showed “continued improvement in business activity” in August, as the general business conditions index climbed to 1.6 from 0.7 in July, while at the firm level, the index fell to 17.9 in August from 23.7 the prior month, according to the Federal Reserve Bank of Philadelphia.

The prices paid index was 10.1, up from 9.9 last month, while prices received narrowed to negative 6.3 from negative 13.8.

New orders index slumped to 11.6 from 13.8, sales or revenues declined to 10.7 from 11.1, the unfilled orders index dropped to 4.5 from 5.5, the inventories index edged higher to negative 2.3 from negative 4.6, the number of full time employees index gained negative 3.0 from negative 8.1, and the average employee workweek jumped to 13.2 from 1.6.

The six months from now regional general business conditions index declined to 19.7 from 23.9, while at the company level, the general business conditions index decreased to 35.0 from 39.1.

Case-Shiller Home Price Indices
Home prices increased 4.3% year-over-year in June, after climbing 4.3% last month, according to S&P CoreLogic Case-Shiller.

Year-over-year, the 10-city composite grew 2.8%, down from the 3.0% gain a month earlier, while the 20-city composite rose 3.5%, after a 3.7% increase a month earlier.

Economists estimated prices would gain 3.6% year-over-year.

The national index gained 0.6% in June, compared to the previous month, while the 10-city composite increased 0.1% and the 20-city composite climbed 0.2%.

Economists predicted a 0.1% rise month-over-month.

“Housing prices were stable in June,” said Craig J. Lazzara, managing director and global head of index investment strategy at S&P Dow Jones Indices. “More data will be required to understand whether the market resumes its previous path of accelerating prices, continues to decelerate, or remains stable. That said, it’s important to bear in mind that deceleration is quite different from an environment in which prices actually fall.”

Richmond Fed surveys
Service sector activity “held fairly steady in August,” according to the Federal Reserve Bank of Richmond service-sector activity survey, released Tuesday.

The current revenues index increased to positive 2 from negative 14 and the demand index narrowed to negative 1 from negative 5.

Local business conditions fell to negative 3 from positive 2, the services expenditures narrowed to negative 14 from negative 24, capital expenditures rose to negative 13 from negative 21, while the number of employees index climbed to zero from negative 10.

The expected service sector revenues index decreased to 3 from 11, services expenditures fell to negative 18 from negative 11, capital expenditures slid to negative 6 from negative 4, while the number of employees index declined to 4 from 15, the wages index dipped to 16 from 24, and the demand index slid to 7 from 13.

The current prices paid trend rose to 5.08 from 3.31, while growing to 2.39 from 2.01 for prices received.

The expected price paid trend increased to 2.83 in August from 3.10 in July, while prices received fell to 1.59 from 2.12.

While manufacturing activity in the district “continued to strengthen” in the month, the Richmond Fed said.

The current conditions index gained to 18 from 10 last month.

Shipments dipped to 22 from 23, new orders rose to 15 from 9, local business conditions gained to 19 from 10 and capital expenditures reversed to positive 4 from negative 15.

Looking six months ahead, the future shipments index fell to 33 from 57, new orders decreased to 25 from 48, local business dropped to 23 from 44 and capital expenditures rose to 19 from 8.

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Economic indicators Federal Reserve Bank of Philadelphia Federal Reserve Bank of Richmond Manufacturing industry Housing market Housing Home prices