American households grew more pessimistic in July about their future financial situation and job prospects, breaking a two-month trend of rising optimism and reflecting a softening of the labor market recovery.
The New York Federal Reserve’s survey of consumer expectations, released Monday, shows that after several months of improvement, household expectations about their year-ahead finances, the risk of job loss, and the overall employment rate soured in July.
The survey, based on a nationally representative sample of 1,300 households, showed that consumers put the odds of the unemployment rate being higher next year at 39.3 percent in July, up from 35.1 percent in June.
The expected risk of being fired or laid off also rose, with the mean perceived probability of involuntarily losing one’s job in the next 12 months growing from 15 percent in June to 16 percent in July.
“Other indicators, such as expected growth in home prices and in household income, remained steady at considerably higher levels than in the March-April period, but below their pre-COVID-19 levels,” the Fed researchers said in a release.
The decline of consumer sentiment in July around job prospects and household financial situations likely reflects the impact of fresh restrictions meant to curb the COVID-19 resurge, and broadly mirrors recent labor market data that points to the jobs recovery losing steam.
After adding a record 4.8 million jobs in June, the U.S. economy added a far more modest 1.8 million jobs in July. While the trajectory remains one of broader labor market recovery, its dynamic has slowed and, so far, only around 40 percent of the jobs lost due to pandemic-driven shutdowns have come back.
Reinforcing the view of a sputtering jobs recovery in July was a report last week from global outplacement firm Challenger, Gray & Christmas, which showed job cuts announced by U.S. employers surging 54 percent to 262,649 in July compared to the previous month.
“The downturn is far from over, especially as COVID cases rise around the country,” said Andrew Challenger, senior vice president at Challenger, Gray & Christmas. “Consumers are buying fewer goods and services, businesses are closing, and bankruptcies are rising.”
A separate report released Monday shows that most Wall Street workers can expect to see their bonuses slashed this year and some jobs may be cut.
Layoffs could begin at traditional asset management firms and investment and commercial banking divisions later this year or in early 2021, according to compensation consulting firm Johnson Associates Inc.
Banks have struggled to make a profit as the pandemic suppressed client activity and threatens to cause loan defaults. The current low-interest-rate environment also makes it more difficult for banks to turn a profit on retail operations of deposit-taking and loan-making.
There were 16.3 million unemployed in the United States last month.
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