Consumer confidence weakened sharply in November, survey shows

Shoppers are seen inside a Kroger supermarket on October 14, 2022 in Atlanta, Georgia.

Elie Nouvelage | AFP | Getty Images

Higher interest rates, a potential recession and persistently high prices have made consumers far less confident about the current state of the economy as well as the direction things are headed, according to a closely knit confidence gauge. monitored published on Friday.

The University of Michigan Consumer Survey released a reading of 54.7 for November, down 8.7% from the previous month’s reading of 59.9. That was well outside the Dow Jones estimate, which predicted the number would be little changed at 59.5.

Along with that reading, the Current Economic Conditions Index fell 11.9% to 57.8. The Consumer Expectations Index, which looks at where respondents see things going in six months, fell 6.2% to 52.7.

On a yearly basis, the overall index reading fell 18.8%, while the measure of current conditions was 21.5% and the measure of future expectations slipped 17%.

The University of Michigan release comes a day after the Bureau of Labor Statistics reported the consumer price index rose 0.4% in October, below the 0.6% estimate. . The news sparked a wild rally on Wall Street, where sentiment was strong that the Federal Reserve could slow the pace of interest rate hikes as inflation shows signs of stabilizing.

“Right now, inflation and rising borrowing costs are putting pressure on household spending,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “For low-income households in particular, higher prices for basic necessities limit discretionary spending, reduce savings and contribute to higher credit card debt.”

The survey noted a particular drop in views on spending on durable goods – big-ticket items such as televisions, kitchen appliances and motor vehicles. The index for this group fell 21% as consumers were wary of rising borrowing rates and high prices.

Purchases of durable goods have been falling since mid-2021, falling in the last two quarters after surging at the start of the Covid pandemic.

“Better October inflation news did not arrive in time to boost sentiment, which unexpectedly declined,” Baird added. “The economy may not be in a recession, but for households struggling under the weight of rising prices, many certainly are.”

Inflation expectations rose slightly in the month despite October’s CPI reading, which showed year-on-year prices rose 7.7% from 8.2% the preceding month.

The one-year inflation outlook rose to 5.1%, the highest level since July, while the five-year indicator rose to 3%, the highest since June. These readings have remained in a narrow range for most of the year, starting 2022 at 4.9% and 3.1% respectively.

But these are high in historical terms and come as the Fed has raised its benchmark interest rate by 3.75 percentage points since March. Friday’s survey shows consumers, whose spending accounts for 68% of U.S. GDP, are wary ahead of the pivotal holiday shopping season.

“Consumers managed to keep their heads above water earlier this year when gasoline prices hit highs well above $5 a gallon,” wrote Paul Ashworth, chief economist for the North America at Capital Economics. “But it will be harder for them to ignore high interest rates given that the household savings rate is already at an abnormally low level.”

The sentiment index hit an all-time low in June as concerns mounted that the United States was already in recession or heading into one. GDP grew at an annualized 2.6% in the third quarter, helping to ease some contraction anxiety after the first two quarters saw negative readings, but many economists still expect the United States enters a recession in 2023.

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