Retailers are biting their nails because of the large decline in consumer confidence. But it remains to be seen whether consumers will vote with their feet.
We had expected a snap-back in consumer spending after a decline in May, and that's what these numbers showed, ... Consumers appeared to be optimistic in their spending, despite the stock market and the ongoing corporate frauds and malfeasance.
The stock market now faces two primary risks. First, the economy could slow too much, which would jeopardize profit performance. Second, a strong rebound in stocks could stoke consumer spending and renew concerns about overheating and additional interest rate hikes.
The higher level of energy prices is certainly affecting the psychology of consumers. But the underlying strength of the economy, and the continued increase in the relative strength of the underlying job market should prevent consumer spending from collapsing.
The improving job market is boosting consumer sentiment. Employees are beginning to see a somewhat better chance of receiving wage increases this year. If oil prices stabilize as we expect, consumers this year should see their paychecks stay ahead of inflation.