U.S. consumer confidence slipped to a four-month low in November, with households less keen to spend on big-ticket items over the next six months amid high inflation and rising borrowing costs, heightening the risks of a recession next year.
But the survey from the Conference Board on Tuesday also showed that consumers remained upbeat about the labor market, which could limit some of the anticipated economic downturn. The labor market has remained resilient despite the Federal Reserve’s stiff interest rate increases, helping to keep consumer spending and the overall economy afloat.
“The weakening trend in confidence foreshadows a recession which will likely happen in the coming year,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. “However, any potential recession could be short and shallow given the tight labor market and the hint that layoffs may not be as bad as feared.”
The Conference Board’s consumer confidence index fell to 100.2, the lowest reading since July, from 102.2 in October. Economists polled by Reuters had forecast the index to come in at 100.0. Still, the index remains above its COVID-19 pandemic lows. It places more emphasis on the labor market, which remains tight.
The decline in confidence was concentrated in the 55-and-over age group as well as among households with annual incomes below $50,000. Lower-income households have borne the brunt of inflation that, before October, was marked by annual consumer prices increasing at rates not seen since the early 1980s.
There were notable decreases in confidence in Pennsylvania, Ohio and Michigan, which offset increases in Texas, New York, Florida and Illinois.
Consumers’ 12-month inflation expectations increased to a four-month high of 7.2% from 6.9% in October, which the survey blamed on rising gasoline and food prices.
The Fed has raised its policy rate by 375 basis points this year from near zero to a 3.75%-4.00% range in what has become the fastest rate-hiking cycle since the 1980s.
Stocks on Wall Street fell. The dollar was steady against a basket of currencies. U.S. Treasury yields rose.
The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, rose to 32.8 from 31.8 in October. This measure correlates to the unemployment rate from the Labor Department.
Though it has dropped from 44.7 last November, it remains quite high by historical standards. This month’s increase was despite a surge in job cuts in the technology sector as well as interest-rate sensitive finance and housing industries.
“The Fed’s strategy of attempting to reduce the availability of job openings relative to the supply of labor to put downward pressure on inflation does not appear to have made any progress in November based on this survey of households,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York.
Data on Wednesday is likely to show job openings remaining elevated in October, according to a Reuters survey. There were 1.9 job openings for every unemployed person in September.
With inflation continuing to dominate consumers’ concerns, fewer of them were interested in making big-ticket purchases over the next six months, the survey showed. The decline in buying intentions occurred across the board, flagging a slowdown in demand for goods and also bolstering expectations that recent signs of goods disinflation could become entrenched.
That also fits in with views that the economy could experience a sharp slowdown in growth or a mild recession in the first half of 2023.
The government is expected to confirm on Wednesday that the economy rebounded strongly in the third quarter after gross domestic product contracted in the first half of the year.
Fewer consumers also planned to purchase a house over the next six months, according to the survey. Rising mortgage rates and high prices have significantly reduced affordability for many prospective buyers. Though house prices have came off the record highs reached during the COVID-19 pandemic-driven housing market boom, they remain significantly high.
A separate report on Tuesday showed the S&P CoreLogic Case-Shiller national home price index increased 10.6% year on year in September. That was the smallest gain since December 2020 and followed a 12.9% rise from August.
On a monthly basis, prices fell for a third straight month. Tight supply will, however, likely keep a floor under house prices.
“While buyers are stepping aside waiting for more affordable prices and rates, causing the slowdown on price growth, would-be sellers are sticking to their ground and holding tight to the inventory they currently own,” said Nicole Bachaud, senior economist at Zillow in Seattle.
“As a result, prices might not continue to plunge down as much as some projections anticipate, as the available inventory of homes on the market is constrained,” Bachaud said.
A third report from the Federal Housing Finance Agency showed that house prices increased 11.0% in the 12 months through September, the smallest rise since October 2020, after advancing 12.0% in August.