MARKET TRENDS: Confidence Slides While Services Picks Up

Consumer confidence declined sharply in July, despite a decent rise in income levels and lower oil prices which boosts consumer’s purchasing power. The drop in sentiments was led by a less optimistic outlook for the labor market, although the current conditions are favorable. The headline Index had earlier gained in June. Consumer’s short-term expectations weakened in July due to uncertain and volatile financial markets, prompted by the situations in Greece and China. The Conference Board Consumer Confidence Index came in at 90.9 in July, lower than a revised 99.8 in June from the initially reported 101.4. The July Index also missed market expectations of 100 and was the lowest since September 2014. However, the CB Consumer Confidence Index remains at levels that indicate an expanding economy and a relatively confident consumer. The report’s hard-to-get jobs index rose to 26.7 last month from June’s upwardly revised 26.1.

The U.S. services sector picked up slightly in July. The flash PMI reading of activity in the services sector from Markit Economics came in at 55.2, higher than the June reading of 54.8 and market expectations of 55.0. The July Index indicates a rebound in business activity growth from the five-month low recorded in June. A reading over 50 signals expansion in economic activity. The sub index measuring new business at service companies climbed to 56.8, the highest level since April, from 56.3 in June. Employment growth remained impressive with the Index rising again from last month. Markit’s “flash” composite PMI, a weighted average of its manufacturing and services indexes, was 55.2, also higher than in June. An improvement in services sector confidence may lead to a pick-up in spending during the second half of the year. As the services sector dominates a large part of total Gross Domestic Product, the services PMI is an important indicator of the overall economic condition in the U.S.

Other regional survey reports were also released on Tuesday. The Dallas Fed Services Revenues Index of 19.1 in July was better than 13.2 in June. The Federal Reserve Bank of Richmond released its manufacturing Index of 13 in July, far above market expectations of 6 and a similar reading to the previous month. The early indicators of manufacturing activities in July were weak.

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