American consumers are feeling less confident this month as concerns over a possible recession grew despite most recent data pointing to a healthy U.S. economy. The Conference Board, a business research group, said Tuesday that its consumer confidence index fell to 106.7 from a revised 110.9 in January. Analysts had been forecasting that the index remained steady from January to February. The decline in the index comes after three straight months of improvement.
Quick Read
- American consumer confidence dipped in February to 106.7 from January’s 110.9, contrary to analysts’ expectations of stability, marking the end of three consecutive months of growth, as reported by the Conference Board.
- The decrease in confidence is attributed to growing recession fears, despite recent signs of a robust U.S. economy, including strong job growth and continued consumer spending.
- The short-term outlook index, which assesses Americans’ expectations for income, business, and employment, declined slightly, with readings below 80 often indicating a looming recession.
- This decline in confidence occurs amidst a backdrop of enduring high interest rates and inflation, although inflation has decreased from its peak last year, it remains above the Federal Reserve’s 2% target.
- Despite lower concerns about food and gas prices, increased apprehension about job availability and the political climate surrounding the presidential campaign were noted.
- Expectations for inflation dropped to their lowest since March 2020, which could positively impact consumer behavior by reducing the urgency to make purchases that can drive prices up.
- The Federal Reserve’s aggressive rate hikes since March 2022 aimed at controlling inflation have left rates unchanged in recent meetings, with anticipations of rate cuts later in the year to support the economy.
- The U.S. economy demonstrated resilience with a 3.3% growth rate in the last quarter, and the labor market remains strong, with significant job additions and a low unemployment rate.
- Despite the dip in consumer confidence, economists like Rubeela Farooqi of High Frequency Economics believe that declining interest rates will eventually bolster consumer sentiment.
- Interestingly, the survey indicated an increase in consumers planning to make significant purchases in the near future, suggesting mixed feelings about the economic outlook.
The Associated Press has the story:
Consumer confidence slips in February over potential recession anxiety
Newslooks- (AP)
American consumers are feeling less confident this month as concerns over a possible recession grew despite most recent data pointing to a healthy U.S. economy.
The Conference Board, a business research group, said Tuesday that its consumer confidence index fell to 106.7 from a revised 110.9 in January. Analysts had been forecasting that the index remained steady from January to February. The decline in the index comes after three straight months of improvement.
The index measures both Americans’ assessment of current economic conditions and their outlook for the next six months.
The index measuring Americans short-term expectations for income, business and the job market fell to 79.8 from 81.5 in January. A reading under 80 often signals an upcoming recession.
Consumers’ view of current conditions also retreated, falling to 147.2 from 154.9.
The decline in consumer confidence this month comes as somewhat of a surprise as the economy continues to show resilience in the face of higher interest rates and inflation. Though price growth has receded considerably in the past year, inflation remains above the Federal Reserve’s 2% target.
Consumer spending accounts for about 70% of U.S. economic activity, so economists pay close attention to consumer behavior as they take measure of the broader economy.
Overall, confidence is barely above the average from last year, which was 105.4, according to Stephen Stanley, an economist at Santander, a bank.
Americans were slightly less worried about food and gas prices last month, the Conference Board said, but expressed more concern about jobs and the ongoing presidential campaign.
Consumers’ expectations of future inflation fell to their lowest level since March 2020. Lower inflation expectations are a positive sign because they can become self-fulfilling: If people expect prices to rise rapidly in the months ahead, they may accelerate their purchases, which can fuel more price hikes.
Yet even as inflation concerns wane, the proportion of Americans who said jobs were “easy to get” fell.
“In the case of jobs, the market is still strong, it’s just much less strong than a year ago when job swapping for higher pay was easy,” said Robert Frick, an economist at the Navy Federal Credit Union. “And now the contentious election season is coming closer into view, and national elections strongly influence perceptions of the economy.”
In a bid to combat four-decade high inflation in the wake of the pandemic, the Federal Reserve raised its benchmark rate 11 times beginning in March 2022. However, the central bank has left rates alone at its last four meetings and is expected to start cutting rates later this year, which is expected to further boost an already strong economy.
The government reported last month that the nation’s economy grew at an unexpectedly brisk 3.3% annual pace from October through December as Americans showed a continued willingness to spend freely.
Despite some recent high-profile layoffs, the labor market continues to churn out jobs. U.S. employers added 353,000 jobs in January and the unemployment rate stayed at 3.7%, just above a half-century low.
Though most economists did not anticipate a decline in consumer confidence this month, there doesn’t appear to be great concern that an uptick in pessimism will be sustained.
“Overall, consumers are set to benefit from declining interest rates as the Fed starts to lower the target range this year,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics, “which should be supportive of sentiment over time.”
In another contradictory twist, the number of people in the Conference Board’s survey who said they planned to make a big-ticket purchase like a car or major appliance in the next six months rose.
