Consumer Sentiment Falls in Late July as Coronavirus Cases Rise and Federal Aid Gets Set to Expire

Lower consumer confidence levels are anticipated across the U.S. in July as consumers fret over federal spending cuts and rising rates. Many metropolitan regions of the country also stand to face increased hiring costs as business begins to feel more optimistic. Consumers will also brace for rising rates in July.

According to the American Axle & Manufacturing Holdings, Inc. – June’s ASDA Future Trends Report, housing market conditions in July also reflect pessimism, especially among the auto-makers whose plants are located in parts of the country where autos produced by their parent companies are assembled. Auto dealers, who watch the macro conditions very closely, anticipate slower and more frequent vehicle sales in July.

AAM research revealed that in the latter half of June, the new-car inventory on dealer lots became 5.5 percent larger than it was a year earlier, setting the stage for a tighter manufacturing environment. This development is happening despite a 5 percent year-over-year increase in transaction prices, as transaction pricing could have lagged behind the price increases in the overall market given the glut of recent unsold vehicles.

ASDA Future Trends also revealed that job openings expanded 1.4 percent in June, driven by a 4.2 percent rise in construction vacancies and an increase of 3.2 percent in manufacturing openings. Unemployment levels decreased slightly in June, but they did so to 3.8 percent when accounting for jobless workers no longer looking for employment. It had been at a post-recession high of 7.1 percent a year earlier.

Hiring to Slow in July?

Retail and auto employment levels are also likely to be influenced by the looming deadline for federal government stimulus funding for transit transportation in July. There is, in fact, a likelihood that there could be less federal transit funding this year if Congress decides to pass no legislation at all.

The U.S. Census Bureau reported last month that the number of people employed by the federal government contracted by almost 200,000 jobs, or 1.4 percent, from the previous year. Various studies, including a 2017 Pew Center analysis, revealed that the state’s unemployment rate, which stands at 5.7 percent, has effectively become “income driven,” a result of the replacement of jobs in the construction industry. During this time, construction employment has fallen by almost 2 million jobs, representing a quarter of all of the jobs lost by the sector since 2011.

Those construction jobs represent “pretty sizable tax revenues for state and local governments,” says Drew Matus, senior U.S. economist at IHS Markit. “It’s crucial for economic growth, and it’s not clear yet what will happen.”

Auto industry jobs have risen, but, while they reflect the rise in vehicle sales, jobs have not recovered to the levels they were prior to the financial crisis, which began in mid-2008. These jobs, therefore, are lost if state transit systems are not fully funded during the short period of time between now and July.

Some of these employment shifts may be fueled by manufacturing business leaders who rely on federal transit funding, say ASDA Future Trends senior editors.

“We would expect to see more of an increase in their hiring plans,” said Danielle Torrone, senior vice president of national sales for Tyson Foods.

Many auto manufacturers are located in economically distressed regions of the country, but many of them have been actively hiring, both nationally and in their home regions. Over the past several years, the auto industry has benefited from wage hikes from major car dealers, and the company has also experienced growth of more than 10 percent each year, partly due to the increasing popularity of low-cost alternative fuel technology.

“Lighter trucks, SUVs, and even crossovers are a good fit for consumers in this market,” said Geoff Johnson, the Toyota division president for Campbell Soup Company’s culinary businesses.

“It’s reasonable to imagine that as the economy starts to grow on a more sustainable basis, as well as as interest rates start to increase, that consumers may be a little more careful with their income and their spending.”

Employment is projected to be weaker in July, which corresponds to the recent Jobs Openings and Labor Turnover Survey (JOLTS) data released by the Department of Labor. The April JOLTS report showed the lowest job openings in more than four years, or only 414,000 new openings for the month. Hiring intentions are also expected to subside.

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