Fed’s inflation battle crashes California confidence in bubble-sized drop – Orange County Register

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“Bubble Watch” digs into trends that may indicate economic and/or housing market troubles ahead.

Buzz: If part of the Federal Reserve’s strategy to cool inflation is to scare shoppers — it’s working. Californians’ views of their financial futures took their biggest drop in nearly 14 years. You know, back when the last bubble burst into the Great Recession.

Source: My trusty spreadsheet analyzed The Conference Board’s July polling of shoppers, including a consumer confidence index tracking California.

The Trend

A strong job market with plentiful openings and surging salaries is helping keep consumer assessments of today’s business climate high. But large unknowns — namely the impact of the Fed’s fight against 40-year high inflation — make the future looks very cloudy.

Fed unleashes another big rate hike in bid to curb inflation

Ponder the slice of the optimism index that looks at consumer expectations. It just took its biggest one-year dive since October 2008, falling 35% to 75.3 from July 2021. This crash is a worrisome level of concern as the California view of the future averaged 94 in pre-pandemic 2015-19.

The muddled future stems from soaring fears that attempts to cool inflation could cause a recession, not to mention a stubborn pandemic that won’t go away.

Such skittishness pushed the overall statewide confidence index down for the third consecutive month to 103.2 in July, down from a revised 110.5 in June and 129.3 a year ago. That’s a 7% one-month drop and a 20% drop over 12 months.

So California’s confidence level is now well below the average 113 seen in the five years before the pandemic.

The good news — or the Fed’s target — is California consumers’ views of current conditions improved in July. This index of today’s business climate was 145 for July — up from 140 a month earlier but below 150 a year earlier. July’s result reflects this summer’s relative economic strength, as this benchmark is just below this measure’s 141 average in 2015-19.

Elsewhere

The Conference Board tracks the nation and seven other states — Texas, New York, Florida, Illinois, Pennsylvania, Ohio and Michigan. California is by no means alone with its fears for the future.

Overall confidence? Fell in three states in July but dropped in all seven over the year. The national index was down 3% for the month and off 24% over 12 months.

Current conditions? Declined in two states in July but dropped in six over the year. The nation was down 4% for the month, off 10% over 12 months.

Outlook? Lower in three states in July but dropped in all seven over the year. The U.S. was down 1% for the month and also sharply lower — 37% — over 12 months.

Arch-rivals? Texas’ overall confidence fell 2% in the month, decreasing 24% in the year. Florida had a 1% one-month drop and a 21% drop in a year.

Big picture

What’s driving swings in optimism? The Conference Board also asks consumers nationwide about the job market and plans to make major purchases in the next six months …

More jobs? Only 15.7% said “yes” — down from 15.9% a month earlier and down from 25.5% a year earlier.

Buy a home? Just 4.4% said “yes” — down from 5.7% the previous month and down from 6.4% 12 months ago. Last time homebuying was less popular was February 2013.

Buy a vehicle? Pollsters found 9.4% saying “yes” — down from 10.6% a month earlier and down from 12.1% a year earlier.

Major appliance purchase? 39% said “yes” — down from 45% the previous month and down from 54% 12 months ago.

Then there’s the latest unnerving trend, inflation. Americans polled expect the cost of living to be 7% higher in a year, down from 7.6% a month earlier and up from 5.6% a year ago.

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