'Trend Is In The Wrong Direction': Experts React To Consumer Expectations Hitting 9-Year Low

Zinger Key Points
  • U.S. consumers' near-term income outlook just hit 13-year lows.
  • The downturn in consumer sentiment is weighing on stock prices.

The SPDR S&P 500 ETF Trust SPY traded lower by 1% on Tuesday after the latest reading of consumer confidence suggests U.S. shoppers are taking notice of rising prices and falling stocks.

What Happened: The Conference Board's consumer confidence index dropped from 103.2 in May to just 98.7 in June, missing economist expectations of 100. The expectations index, which measures consumers' short-term income growth outlook, dropped to 66.4, its lowest level since 2013.

Related Link: Nearly 60% Of Americans Approaching Retirement Plan To Work Longer: Survey

The latest consumer confidence data comes after the University of Michigan's popular Surveys of Consumers consumer sentiment index dropped to its lowest level in history last week.

Consumer confidence is certainly on the Federal Reserve's radar as it tries to somehow bring down inflation without triggering a U.S. recession. Last week, Fed Chair Jerome Powell told Congress the University of Michigan data was "eye-catching."

Related Link: Oil Stocks Drop As Biden Pushes For Gas Tax Holiday

Earlier this month, the Labor Department reported an 8.6% increase in the consumer price index in May, the highest inflation reading in any month since 1981. Core inflation, which excludes volatile food and energy prices, was up 6% in May, above economist estimates of a 5.9% gain. The Labor Department said shelter, gasoline, and food were the largest contributors to surging prices.

Unfortunately, the latest inflation numbers suggest prices are rising faster than wages for many Americans, a dynamic which appears to be impacting consumer confidence.

Voices From The Street: Bill Adams, chief economist for Comerica Bank, said volatile gas and food prices are likely having the largest impact on consumer sentiment.

"Consumers are especially sensitive to these prices since they change quickly and are more visible than a bag of potato chips going from 16 ounces to 13.7 ounces, or a car or home appliance with fewer features than were available six months ago," Adams said.

Brian Price, head of investment management for Commonwealth Financial Network, said Americans are struggling with rising credit card and mortgage rates.

"The cooling of the housing market may help to curb inflation as we move to the second half of the year, but I don’t expect it to put meaningful downside pressure in the Consumer Price Index (CPI) report in the near term," Price said.

Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, said the trend in consumer confidence "is in the wrong direction."

"If we are able to avoid a recession, then the stock market is fairly valued. However, if we do go into recession, then we would expect the lows for the year haven’t been hit yet," Zaccarelli said.

Posted In: Bill AdamsBrian PriceChris ZaccarelliComerica BankCommonwealth Financial NetworkIndependent Advisor AllianceAnalyst ColorNewsEcon #sAnalyst Ratings

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