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The delta variant casts a ‘dark cloud over consumers’: Expert

Lynn Franco, The Conference Board Senior Director of Economic Indicators, joins Yahoo Finance to break down the latest data on consumer confidence.

Video transcript

ALEXIS CHRISTOFOROUS: Confidence in the economy slumped in September to a seven-month low. That's certainly not helping matters on Wall Street today. The closely followed index of consumer confidence slid to 109.3 from a revised 115.2 in August. This is the lowest reading we've seen since February. I'm joined now by Lynn Franco. She is the Conference Board Senior Director of Economic Indicators. And Lynn, maybe you could just break down for us what were the main factors here contributing to that drop in confidence.

LYNN FRANCO: Well, one of the main factors which has been at play now for several months is the delta variant. And we're really seeing it sort of cast a dark cloud over consumers. We've had three consecutive months of declines. And it's really sort of caused expectations to downshift a little bit so that consumers are more sort of in a cautious mode at the moment.

ALEXIS CHRISTOFOROUS: So does it mean that consumers are cautious enough to hold back on their spending in a meaningful way that could really slow down the economy in the fourth quarter?

LYNN FRANCO: We don't really think so. I think, you know, consumer confidence, much like economic growth, has sort of slowed a little bit in recent months. But we think there's still enough momentum, both in terms of confidence and growth, to carry maybe expansion forward for the next several quarters. So we do expect a little bit somewhat slower growth in Q3. And then sort of the uncertainty around the delta variant hopefully will begin to dissipate a bit. I mean, we're seeing some of the infection rates come down, so that's positive news. And so we're expecting probably growth to pick up a little bit more sort of in Q4 and consumer spending as well.

ALEXIS CHRISTOFOROUS: So consumers not feeling too great about economic conditions at the moment, Lynn, but what about six months from now? Because I know that's part of your survey. You ask folks how they feel about the economy six months out. Was that any better?

LYNN FRANCO: No, that wasn't any better either. And I think this is where we're sort of seeing a little bit of a pause. And consumers have turned a little bit more cautious. They're expressing some concern about economic growth in the short term, also expressing some concerns about employment growth. So that's not necessarily good news. However, they weren't as pessimistic or we didn't see a real deterioration in their income expectations. So we think that, at least, will help support spending and hopefully sets us up for a somewhat good holiday season.

ALEXIS CHRISTOFOROUS: Yeah, I saw that the lack of confidence in the economy didn't exactly spill over into how folks feel about the job market. Nearly 56% of the people surveyed said that jobs are, quote, "plentiful" right now. So I have to think that's an underlying positive for consumer confidence going forward.

LYNN FRANCO: Yes, because employment growth really is one of the main factors for consumer confidence. So as long as we begin to see sort of a rebound in employment-- and I think there are some projections that, you know, what we saw in August was perhaps a bit of an anomaly, and we should have some stronger growth in the coming months-- that should help support consumer confidence going forward.

ALEXIS CHRISTOFOROUS: But give us sort of a bit of a historical perspective on all this, Lynn, because we're talking about confidence being at a seven-month low, but even at its level right now, isn't it still well above the historical norm?

LYNN FRANCO: It's at a strong level. I mean, when you get a reading above 100, that's generally a strong reading. It, you know, indicates confidence in both current conditions and also in future growth. And if you take a look even at the present situation index, which is at 143.4 right now, that's a very strong reading. So I think what we're just seeing is a little bit of shifting in gears. I mean, you know, the economy was sort of accelerating at, you know, 95, 120 miles per hour. Now we're sort of a little bit more in this, you know, more sustainable 50 to 60 mile an hour zone. So I think that's what we're seeing in the consumer confidence as well.

You know, the one sort of little bit of a pause would be the trend, right? So we'd like to see at least the index either level off or pick up in the coming months so that we then have a little bit more proof that consumers are regaining confidence.

ALEXIS CHRISTOFOROUS: You said a moment ago you think it might be a pretty good holiday season. I'm wondering if that's really possible, if inflation is going to continue to be a worry for consumers, and they're going to have to continue dealing with higher prices. And not just that-- all those supply chain issues, getting what they want for the holidays. Talk to us a little bit more about what those surveyed said about higher prices and how that's impacting their decisions.

LYNN FRANCO: Well, absolutely. You know, inflation continues to be a concern. You know, we're seeing supply constraints, whether it's in chips or, you know, containers off the shore of LA that can't get docked and we can't get the goods sort of in the transportation supply chain. We're also seeing labor market shortages, which are being counteracted by increasing wages.

So these price pressures are going to continue for the next several months. And we expect them to begin sort of easing a bit in 2022. Our own inflation expectations actually came down a little bit. So it doesn't seem to be as great a concern to consumers as it was last month. It still remains elevated. And I think we'll know a little bit more about the holiday season come, you know, next month, when we see where confidence is and also where their income expectations are.