Consumer Confidence Fell in October

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The Consumer Confidence Index from The Conference Board fell in October following two consecutive monthly gains. The composite index decreased by 5.3 points, or 4.9 percent, to 102.5 (see first chart). The index is down 8.2 percent from September 2021 and 20.5 percent from the cycle peak of 128.9 in June 2021. Both components declined in October.

The expectations component dropped 1.4 points, or 1.8 percent, to 78.1 (see first chart) while the present-situation component – one of AIER’s Roughly Coincident Indicators – sank 11.3 points, or 7.5 percent, to 138.9 (see first chart). The present situation index is off 4.5 percent over the past year while the expectations index is down 12.2 percent from a year ago. The present situation index remains at a historically favorable level. However, the sharp decline in October suggests economic growth may be slowing, while the expectations index remains consistent with prior recessions (see first chart).

Within the expectations index, all three components weakened versus September. The index for expectations for higher income gained 0.6 points to 18.9 but the index for expectations for lower income rose 1.3 points, leaving the net (expected higher income – expected lower income) down 0.7 points to 3.8.

The index for expectations for better business conditions rose 0.6 points to 19.2, while the index for expected worse conditions rose 1.4 points, leaving the net (expected business conditions better – expected business conditions worse) down 0.8 points, at -4.1.

The outlook for the jobs market also deteriorated in October as the expectations for more jobs index increased 2.4 points to 19.8 but the expectations for fewer jobs index rose by 3.0 points to 20.8, putting the net down 0.6 points to -1.0. Current business conditions and current employment conditions fell for the present situation index components. The net reading for current business conditions (current business conditions good – current business conditions bad) was -6.5 in October, down from -0.2 in September and the weakest result since July. Current views for the labor market saw the jobs hard to get index increase to 12.7 while the jobs plentiful index fell 4.0 points to a still solid 45.2. The net index (jobs hard to get – jobs plentiful) dropped 5.6 points to 32.5.

Inflation expectations ticked up slightly, rising 0.2 percentage points to 7.0 percent in October from 6.8 percent in September (see second chart). The rise was largely a function of higher food and gasoline prices. Notably, the short-term inflation expectations remain below the recent peaks of 7.9 percent in March and June 2022. Furthermore, while the pattern of movements between The Conference Board measure and a similar measure from the University of Michigan Survey of Consumers, the overall level from the Michigan survey is much lower (though still elevated), and importantly, the longer-term inflation expectations survey from Michigan remains well anchored and consistent with results seen over the last 25 years (see second chart).

Elevated rates of price increases continue to drive an aggressive Fed tightening cycle. A softening job market, slowing economic growth, weak consumer attitudes, and fallout from the Russian war in Ukraine further complicate the economic outlook. Caution is warranted.