Consumer Confidence Index Declines Amid Rising Inflation Concerns

Highlights

• The Consumer Confidence Index fell to 102.6 in October, marking its third straight monthly decline, driven by consumers' expectations of rising inflation over the next year.
• Survey data reveals that many consumers foresee an economic recession ahead, even as spending levels remain robust.
• Purchases of big-ticket items are expected to slow down, with economists viewing decreased consumer confidence as a sign of an impending economic pullback.

Consumers are increasingly pessimistic about the economy's outlook, anticipating a recession despite maintaining strong spending habits.

According to the Conference Board's latest monthly release, the Consumer Confidence Index dropped from a revised 104.3 in September to 102.6 in October. Although the index declined for the third month in a row, it still exceeded economists' forecast of 100.0.

The Present Situation Index, reflecting consumers' perceptions of current business and labor market conditions, decreased to 143.1 in October from 146.2 in September. Meanwhile, the Expectations Index, which gauges short-term outlook on income, business, and labor markets, slipped to 75.6 from 76.4.

Historically, index readings below 80 have indicated a recession within the upcoming year. The Conference Board anticipates a "short and shallow economic contraction" in the first half of 2024, with over two-thirds of consumers in October viewing a recession as "somewhat" or "very likely."

"The ongoing caution about the future is striking, especially since U.S. consumers have continued to spend heavily on goods and services through Q3," noted Dana Peterson, Chief Economist at the Conference Board.

Strong Spending Faces Potential Slowdown

Despite sustained spending, consumers remain highly attentive to price changes. Inflation expectations for the next 12 months rose to 5.9% in October, up from 5.7% over the previous three months. These expectations surpass the 3.7% inflation rate reported by the Labor Department for September, aligning with concerns highlighted by the Michigan Consumer Sentiment Index.

Beyond inflation, consumers are troubled by domestic and global uncertainties, including Middle East conflicts and potential U.S. government shutdowns.

Wells Fargo economists Shannon Seery and Jeremiah Kohl observed that plans to purchase cars, homes, or major appliances in the coming six months declined in October, signaling potential shifts in consumer behavior.

"If job growth slows as forecasted, consumer confidence may continue its downward trend, leading to reduced household spending," the Wells Fargo report stated.

Ben Ayers, Senior Economist at Nationwide, also highlighted that survey data points to an upcoming decline in consumer spending.

"This trend could weaken consumer activity in Q4, particularly for big-ticket purchases, as financing costs have surged over the past year," Ayers explained. "We anticipate a sharp slowdown in consumer spending to close out 2023, which will likely reduce real GDP growth from the strong third-quarter performance."

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