Consumer Confidence May Be on the Fritz
Auto lending leapt by $20 billion last quarter from 1Q13 for the sector’s biggest increase in seven years, the Federal Reserve Bank of New York said earlier this week. Credit card balances and mortgages rose as well, proof positive that consumers’ confidence is soaring for new ground.
But is it?
Sure, consumer debt dropped $78 billion to $11.15 trillion during the quarter, 12% less than its 2008 peak — and its lowest level since 2006. Americans are eager to de-leverage, or rid themselves of debt such as an outstanding home loan, for instance, that has burdened them for years. Once a consumer de-leverages, that opens up room for new debt.
Bloomberg reported today that consumer confidence fell suddenly this month from a six-year high amid interest rate increases. The Thomson Reuters/University of Michigan survey of consumer confidence sentiment fell to 80 from 85.1 in July, which was its highest July since 2007. The drop is the biggest since December 2012.
The survey’s current conditions index, which showcases how Americans view their finances, slid to 91 from its own six-year high of 98.6 last month, its biggest drop in three years.
Are the good ol’ days of consumer confidence a thing of the past, especially when those aforementioned higher interest rates are joined by growing student debt and an increase in both unemployment and taxes? Time will tell. What do you think?
