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U.S. consumer confidence dropped to nearly a 1½-year low in July amid persistent worries about higher inflation and rising interest rates, which could undercut spending, pointing to slower economic growth at the start of the third quarter.

The survey from the Conference Board on Tuesday showed consumers sharply reassessing their spending plans this month, with the share of those polled intending to purchase major appliances like refrigerators and washing machines over the next six months the smallest since the current series began in late 2010.

That, combined with other data showing new home sales tumbled to their lowest level in just over two years in June, painted a picture of an economy vulnerable to a recession.

Economic activity is cooling as the Federal Reserve aggressively tightens monetary policy to tame inflation. The U.S. central bank is expected to raise its policy rate by another 75 basis points on Wednesday, which would bring the total interest rate hikes since March to 225 basis points.

“The decline in consumer confidence tells us that the economy is on unsure footing,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.

The Conference Board’s consumer confidence index dropped 2.7 points to a reading of 95.7 this month, the lowest level since February 2021. It was the third straight monthly decline. Economists polled by Reuters had forecast the index would fall to 97.2.

The survey’s present situation index, based on consumers’ assessment of current business and labour market conditions, fell to 141.3 from 147.2 in June. Its expectations index, based on consumers’ short-term outlook for income, business and labour market conditions, ticked down to 65.3. That was the lowest since March 2013 and compared with 65.8 in June. The persistent reading below 80 keeps a recession in play.

The survey’s so-called labour market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, fell to a still-high 37.8 this month from a reading of 39.9 in June. This measure correlates to the unemployment rate from the Labor Department and suggests a still-healthy jobs market. But the labour market is cooling, with new claims for unemployment benefits at an eight-month high.

Stocks on Wall Street were trading lower. The dollar rose against a basket of currencies. U.S. Treasury yields fell.

Consumers’ inflation expectations over the next 12 months eased to 7.6% from 7.9% in June.

High inflation is forcing consumers to re-evaluate. The share of consumers planning to buy major household appliances like refrigerators, washing machines, dryers and televisions over the next six months dropped to 39.4% from 45.4% in June. That was the smallest since the current series started in November 2010. There was break in the series when the Conference Board changed companies for the survey.

Fewer consumers intended to buy a motor vehicle. That suggests consumer spending was tepid at the start of the third quarter after an expected slowdown in the April-June quarter. Sluggish consumer spending, which left businesses with excess inventory, is expected to have resulted in the economy barely growing in the second quarter.

Walmart Inc on Monday slashed its profit forecast and said it needed more price cuts to pare inventories.

“The rapid decline of consumers planning purchases of goods comes as a surprise, and raises the risk that consumer desire to spend is slowing more broadly,” said Andrew Hollenhorst, chief U.S. economist at Citigroup in New York.

The government’s snapshot of third-quarter gross domestic product on Thursday is likely to show GDP rebounding at a 0.5% annualized rate, according to a Reuters survey of economists. The economy contracted at a 1.6% pace in the first quarter.

Though the odds of a recession are rising, some economists believe the economy could skirt a downturn. The labour market continues to generate jobs at a brisk clip and there were 11.3 million job openings at the end of May. Savings remain high.

Consumers this month also showed less inclination to buy a house as rising mortgage rates eroded affordability, suggesting there would be further declines in home sales. A separate report from the Commerce Department showed new home sales tumbled 8.1% to a seasonally adjusted annual rate of 590,000 units last month, the lowest level since April 2020.

Despite slowing demand, a housing market collapse is unlikely. A severe shortage of homes is keeping prices elevated. The pace of price increases, however, is slowing.

A third report on Tuesday showed the S&P CoreLogic Case-Shiller national home price index increased 19.7% on a year-on-year basis in May after surging 20.6% in April.

The continuing strong house price inflation was reinforced by a fourth report from the Federal Housing Finance Agency that showed home prices increased 18.3% in the 12 months through May after accelerating by 18.9% in April.

“Unmet demand and inventory that remains relatively scarce will keep home prices from declining outright at the national level, particularly if mortgage rates retreat from their recent levels,” said Nancy Vanden Houten, lead U.S. economist at Oxford Economics in New York.

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