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The US economy continues to linger through July. The Conference Board Consumer Confidence Index® which had declined sharply in June, retreated further in July. The Index now stands at 50.4 (1985=100), down from 54.3 in June. Says Lynn Franco, Director of The Conference Board Consumer Research Center; “Consumer confidence faded further in July, as consumers continue to grow increasingly pessimistic about the short-term outlook. Concerns about business conditions and the labor market are casting a dark cloud over consumers, that is not likely to lift until the job market improves. Given consumers’ heightened levels of anxiety, along with their pessimistic income outlook and lackluster job growth, retailers are very likely to face a challenging back-to-school season.”  
 

Consumers’ assessment of current conditions was more downbeat in July. Those saying conditions are “bad” increased to 43.6 percent from 41.0 percent. However, those saying business conditions are “good”, increased to 9.0 percent from 8.4 percent. Consumers’ appraisal of the job market was also more negative. Those claiming jobs are “hard to get” increased to 45.8 percent from 43.5 percent, while those saying jobs are “plentiful” remained unchanged at 4.3 percent.   
 

Consumers’ short-term outlook also deteriorated further in July. The percentage of consumers expecting an improvement in business conditions over the next six months decreased to 15.9 percent from 17.1 percent, while those anticipating conditions will worsen rose to 15.7 percent from 13.9 percent.
 

Consumers were also more pessimistic about future job prospects. Those expecting more jobs in the months ahead decreased to 14.3 percent from 16.2 percent, while those anticipating fewer jobs increased to 21.1 percent from 20.1 percent. The proportion of consumers expecting an increase in their incomes declined to 10.0 percent from 10.6 percent.  
 
The Conference Board Employment Trends Index™ (ETI) increased in July for the 14th month in a row. The index now stands at 97.0, up from June’s figure of 96.7. The index is up 9.8 percent from a year ago.
 

“The growth rate of the Employment Trends Index slowed sharply in the past three months, suggesting that employment growth will remain too weak to keep up with the increase in the working age population,” said Gad Levanon, Associate Director, Macroeconomic Research at The Conference Board. “The disappointing employment numbers may indicate that the low levels of household spending and confidence are making businesses more cautious when it comes to hiring.”
 

However, as we look for more business spending, there is some potentially good news. Corporations are taking advantage of record-low interest rates by issuing bonds by the truckload. Instead of investing this cash in their business, or using it to hire new workers, they are holding it as insurance in case the economy takes another dive.

Companies were sitting on $8.4 trillion in cash in March, about 7% of assets - the highest level since 1963. Banks are making record profits from issuing the bonds, while holding back on loans to small business people and individual borrowers.
 

On the other hand, this will be a good thing for the economy in the not-too-distant future. Over time, these businesses are becoming more confident that the economy is a little more stable - as shown by the improving durable goods report. Investors will reward companies who reinvest this cash in their business - and penalize those who don't, with lower stock prices.

What This Means to all of us…

At some point in time, the floodgates will open, and companies will spend on materials, equipment, new companies - and jobs. When this happens, there will be a sudden shift towards the upside in economic growth. As companies hire, confidence will return to consumers, who will start spending again.
This should help not only the overall US economy, but also fuel increased growth in the ECM sector.