Consumer Confidence Fell Sharply in June

Americans are beginning to question the strength of the economic recovery. The Conference Board reported a big 10-point drop in its Consumer Confidence Index for June, to 52.9. That's a lot worse than the flat reading of 62.9 that economists expected. It also erases two months of gains, bringing sentiment back to its March level. This isn't good news.

First, here's the chart:

Consumer Confidence 2010-06.PNG

As you can see, there was a drastic retreat in confidence in June. It's the biggest dip we've seen since February, and makes the year-over-year rise less than four points. This likely indicates that consumers aren't particularly convinced the economic recovery will be a strong one. Of course, that's something of a self-fulfilling prophecy, as their comfort towards spending would help to speed it up. If they keep their wallets tightly clutched, however, the recovery will be slower.

Beyond confidence, the Conference Board's other measures provide a grim view as well. Its Present Situation Index fell 4.3 points to 25.5. Its Expectations Index also dropped 13.4 points to 71.2.

What happened? The firm's director of consumer research, Lynn Franco says:

Increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence. Until the pace of job growth picks up, consumer confidence is not likely to pick up.

So the weak labor market is causing uneasiness among Americans. But if the consensus of economists is right, unemployment won't fall significantly this year. As a result, the labor market may continue to weigh on consumers through the end of 2010. This isn't a good prescription for bringing the U.S. economy back to life.