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Decline in Consumer Confidence Raises Concerns of Economic Growth

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Aug. 18 2020, Updated 6:16 a.m. ET

Consumer confidence fell 8.7 points to 90.4 in November 2015

According to the Conference Board, the consumer confidence index fell by 8.7 points to 90.4 in November 2015 compared to the upwardly revised level of 99.1 in October 2015. It was well below the consensus estimate of 99.6.

Although lower than the advance estimate, consumer spending has contributed positively toward economic growth in the second estimate of GDP (gross domestic product). A continuous decline in consumer confidence may hamper economic growth.

The First Trust Consumer Discretionary AlphaDEX ETF (FXD) and the Consumer Staples Select Sector SPDR ETF (XLP) have fallen 0.31% and 1.9%, respectively, over the past month as of November 24, 2015.

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Lynn Franco, Director of Economic Indicators at the Conference Board, said in a press release, “Consumer confidence retreated in November, following a moderate decrease in October. The decline was mainly due to a less favorable view of the job market. Consumers’ appraisal of current business conditions, on the other hand, was mixed. Fewer consumers said conditions had improved, while the proportion saying conditions had deteriorated also declined. Heading into 2016, consumers are cautious about the labor market and expect little change in business conditions.”

The future expectations index declined to 78.6 in November

The Consumer Confidence Index is released every month by the Conference Board. It includes data on the present situation as well as future expectations. The present situation index declined to 108.1 in November 2015 compared to 114.6 in October 2015. Even the future expectation index has lowered to 78.6 from 88.7 in October 2015.

With weak consumer confidence, consumer stocks such as Coca-Cola Enterprises (CCE), Harman International Industries (HAR), Mondelez International (MDLZ), and The Hershey Company (HSY) fell 0.24%, 3.9%, 6.0%, and 8.9%, respectively, over the past month as of November 24, 2015.

A broad-based decline in consumer confidence highlights the decreasing optimism among consumers about the present economic situation and the pessimistic future outlook. Consumer spending has been a driving force for economic growth. Cautious spending by households may lead to a weakening of the US economy.

A decline in consumer confidence may influence the Fed’s rate hike decision during the FOMC (Federal Open Market Committee) meeting in December.

Home prices are influencing homebuyers. An increase in home prices may distract homebuyers from making purchases. Let’s take a look in the next article at home prices and where they’re trending with the S&P/Case-Shiller Home Price Indexes.

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