Shaken Confidence, Sluggish Sales in July

Consumer confidence in July fell to its lowest rate in five months and retail sales are tracking only slightly better, according to reports released Tuesday, but economists say the broader picture might not be as bad as it looks.

The Conference Board reported a nine-point decline from June to July in its consumer confidence index, the fastest rate since the days after Sept. 11, as corporate scandals and plummeting stock values shook Americans’ faith in an economic recovery.

At the same time, sales in retail chain stores open at least a year are showing only modest gains for July, according to ShopperTrak RCT’s National Retail Sales Estimate, when compared with the same period a year ago.

Chain-store sales from the first three weeks of the month point to a 3% July gain for stores open at least a year, said Michael Niemira, retail economist for the Bank of Tokyo-Mitsubishi in New York and a consultant on the report. Final numbers for July same-store retail sales are due next week.

Retail giant Wal-Mart Stores Inc. seemed to offer proof of a sluggish July. The Bentonville, Ark.-based seller said Monday that sales for July probably will be at the low end of their plan, which is unusual for the company and contrary to its forecasts earlier in the month.

“Over the course of July, what you saw is some softening in both the confidence and the sales data,” Niemira said. “The question for the broader economy is, has confidence fallen to the point where you become concerned that the consumer will start to retrench? I think not quite yet.”

Based on interviews with 5,000 consumers, the private Conference Board survey also shows a more pessimistic outlook for the next six months.

The number of respondents who expected business conditions to deteriorate rose from 7.1% to 9.2%. Those who anticipated improvement fell from 23.7% to 20.9%, the report said.

And consumers who rated current business conditions as bad rose to 22.1% from 19.5% a month earlier. Those who rated conditions as good, however, also rose slightly to 20.1% from 19.9%. Respondents who said jobs were hard to get rose to 24% in July from 23.2% a month earlier. The number of people who said jobs were plentiful fell to 18.8% in July, down from 20.1% in June.

Conference Board Economist Ken Goldstein said that despite the drop, consumer confidence is relatively strong--and well ahead of the numbers from September.

“It’s a tumble, but it doesn’t mean the bottom fell out of consumer confidence,” Goldstein said. “My strong guess is that after this sudden drop, we’ll probably see some bounce back in August. Don’t look for consumers to go on a splurge, but don’t look at them to put their hands in their pockets and leave them there.”