Consumer Confidence Index Dips as Inflation Fears Heighten
Key Takeaways
- The Consumer Confidence Index came in at 102.6, its third month of declines, as consumers said they expect inflation to continue to rise over the next year.
- Data from the survey showed that consumers anticipate the economy will descend into a recession, even though their spending levels remain strong.
- Spending on big-ticket items was poised to slow, with economists pointing to the lower consumer confidence as a sign that the economy was set to pull back.
Consumers continue to feel worse about the economy, with expectations of a recession still on the horizon, despite keeping up with their levels of spending.
The Consumer Confidence Index declined in October to 102.6, down from a September reading of 104.3 that was revised upward this month, according to the Conference Board’s monthly data release. It’s the third consecutive month that the index declined, though it did come in higher than economist forecasts of 100.0.
The Present Situation Index—consumers’ views of current business and labor market conditions—declined to 143.1 in October, down from 146.2 in September. The Expectations Index showed that consumers’ short-term view assessment of income, business and labor market conditions fell to 75.6 in October, from September’s 76.4 level.
Index readings below 80 have historically signaled a recession within the next year and the board said that its data showed a “short and shallow economic contraction” was anticipated in the first half of 2024. Plus, more than two-thirds of consumers said that recession is “somewhat” or “very likely” in October.
“The continued skepticism about the future is notable given U.S. consumers—at least through the third quarter of this year—continued to spend heavily on both goods and services,” said Dana Peterson, Conference Board chief economist.
Strong Spending May Drop Off Soon
While they are spending, consumers are also focused on prices, with 12-month inflation expectations increasing to 5.9% in October, moving up from the 5.7% inflation expectations of the past three months. Those readings are well above the 3.7% inflation rate that the Labor Department reported for September and come as the Michigan Consumer Sentiment Index also showed that inflation was a forefront concern.
In addition to higher prices for food and fuel, consumers are also worried about other domestic and international issues, like conflict in the Middle East and a potential U.S. government shutdown, the report said.
And consumer buying habits may not last long, as Wells Fargo economists Shannon Seery and Jeremiah Kohl noted in an analysis Tuesday that plans to buy a car, house or major appliance in the next six months all slipped in October.
“If our current forecast for moderating job growth in the coming months does indeed materialize, there is risk that consumer confidence furthers its streak of declines and household spending eventually follows suit,” the Wells Fargo note said.
Nationwide Senior Economist Ben Ayers also noted that the survey indicated that consumer spending was set to decline.
“This could set up a weaker fourth quarter for consumer spending, especially on big-ticket items with financing costs up so much over the past year,” Ayers wrote in an email. “We expect a sharp slowdown in consumer activity to end 2023, reducing real GDP growth from the blowout reading for the third quarter.”