- Consumer confidence index decreased by 5.3 points to 102.5
- Labor market gap fell from 38.1 to 32.5
- Increase in housing prices slowed further in August
WASHINGTON, October 25 (Reuters) – U.S. consumer confidence slumped in October after two consecutive months of gains amid growing concerns about inflation and a possible recession next year, but households remain willing to buy high-cost products such as motor vehicles and home appliances. he did.
The Conference Board’s survey on Tuesday showed that more consumers are planning to buy homes in the next six months, despite rising borrowing costs. The steady increase in consumers’ purchase intentions may provide some stability for the economy in the short run.
But there are signs that the Federal Reserve’s aggressive rate hikes are starting to cool the labor market, as the share of consumers who see jobs as “abundant” and more people say employment is “difficult.”
“The biggest risk is the unknown lagged effects of the Fed’s cumulative tightening, and the economy may not feel the full effects until next year when recession risks are high,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.
The Conference Board’s consumer confidence index fell to 102.5 this month from 107.8 in September. Economists surveyed by Reuters had estimated the index as 106.5. The decline in confidence was seen in all age groups, but was more pronounced in the 35-54 and 55 and above age groups.
Regionally, there have been significant declines in Florida, possibly due to Hurricane Ian and Ohio. Consumers’ 12-month inflation expectations rose to 7.0%, possibly reflecting the recent reversal in gasoline prices after falling from 6.8% last month over the summer. Food also remains very expensive.
Stubbornly high inflation and declining confidence dealt a blow to President Joe Biden and the Democrats’ hopes of keeping control of Congress in November. 8 by-elections.
Fighting the fastest rising inflation in 40 years, the Fed raised the benchmark overnight rate from near zero in March to its current range of 3.00% to 3.25%, the fastest rate of policy tightening in one or more generations. Based on US central bank officials’ own estimates and recent comments, this ratio is likely to close the year at mid-4%.
The baseline index, based on the survey’s assessment of consumers’ current job and labor market conditions, dropped from 150.2 in September to 138.9, the lowest level since April 2021.
The index of consumer expectations, based on the short-term outlook for income, jobs and labor market conditions, dropped to 78.1 from 79.5 last month. The prospects index remains below 80, a level associated with a recession, suggesting that the risks of a recession may increase.
The survey’s labor market spread, derived from data on respondents’ views of whether jobs are plentiful or hard to get, fell from 38.1 in September to 32.5, the lowest reading since April 2021.
This measure relates to the unemployment rate from the Labor Department and is still high by historical standards. Unemployment benefits data show that the labor market remains tight.
Stocks on Wall Street were trading high. The dollar fell against a basket of currencies. US Treasury prices rose.
EXPENDITURE PLANS INCREASED
Even as consumers worried about the outlook for the economy, they continued to be interested in buying the big ticket for the next six months, suggesting that many Americans plan to stay home during the holiday season, despite withdrawing their travel plans.
The share of consumers planning to buy motor vehicles rose to the highest level since July 2020. More consumers planned to buy household appliances such as refrigerators, washing machines and vacuum cleaners.
“Consumers have plenty of excess savings and are willing to dig up this pile of cash to at least keep their real spending steady, even as inflation eats away at their real income,” said Scott Hoyt, senior economist at Moody’s Analytics in West Chester, Pennsylvania. .
Consumers were also more inclined to buy a home, possibly encouraged by a sharp slowdown in home price inflation.
But rising mortgage rates remain a stumbling block. The 30-year fixed mortgage rate averaged 6.94 percent last week, up from a 20-year high of 6.92 percent the previous week, according to data from mortgage finance house Freddie Mac.
A separate report released Tuesday showed the S&P CoreLogic Case-Shiller national home price index rose 13.0% year-on-year in August after rising 15.6% in July. On a monthly basis, prices fell 0.9% in August, this is the second monthly decline.
The third report from the Federal Housing Finance Agency showed that home prices rose 11.9% in the 12 months to August, after a 13.9% increase in July. Prices fell 0.7% month-on-month after falling 0.6% in July. For the first time since March 2011, monthly prices fell back-to-back.
“We expect home price inflation to slow through the rest of 2022, to single digits by the end of the year and to zero in the second quarter of 2023,” said Nancy Vanden Houten, US economist at Oxford Economics in New York. “Prices will need to adjust as home sales drop as declining affordability is holding back many buyers. However, inventory remains low and we think this will keep a base below home prices.”
Reporting from Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
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