Consumer confidence posted a sizable loss in June, with most of the overall decline in how consumers viewed future prospects for the national economy. Perhaps of greater importance was that the entire June decline was among households with incomes above $75,000. Higher income households were not only less optimistic about economic prospects but viewed their own financial prospects much less favorably. The percent of upper income households that expected improve finances in the year ahead fell to 24% in June from 37% in May. Lower income households, in contrast, benefited to a greater degree from the recent declines in gas prices, which completely offset their less favorable outlook for the economy.

Job Growth Stalls
News reports about recent economic developments reaching consumers have become increasingly negative. Reports of job losses for the first time in six months have outnumbered job gains. For the first time this year, consumers were more likely to expect increases in the unemployment rate than additional declines. Confidence in economic policies remained near record lows, as just 10% of all consumers judged current policies favorable.

Buying Plans Decline Among Upper Incomes
Buying plans were unchanged among lower income households but were much less favorable among those with incomes above $75,000. Favorable vehicle buying attitudes declined by 10% among upper income households but were unchanged among lower income households. Favorable buying plans for large household durables fell by 14% among higher income households compared with a loss of just 1% among lower income households.

Consumer Sentiment Index
The Sentiment Index was 73.2 in June 2012, down from 79.3 in May, but remaining slightly ahead of the 71.5 in last June’s survey. The June loss was nearly evenly split between the current and expected components of the Sentiment Index. The monthly loss in the Expectations Index was a bit larger, falling to 67.8 in June from 74.3 in May, but it was still above last year’s 64.7. The Current Conditions Index declined to 81.5 from 87.2 in May, and nearly equal last year’s 82.0.

The overall June decline would normally be consistent with a somewhat slower spending growth rate. The sharp declines among upper income households, however, may have a greater impact on the economy since their spending accounts for a large share of the total. The June loss among higher income households was associated with a large drop in favorable ratings of economic policies and a growing recognition that federal policies to bridge the fiscal cliff will not even be discussed until the very last minute. This meant that they wanted to adopt more cautious spending plans now to protect their finances from potentially adverse developments.