WASHINGTON, Oct 25 (Reuters) – U.S. consumer confidence fell in October after two consecutive monthly increases amid growing concerns about inflation and a possible recession next year, but households remained keen on buy expensive items like motor vehicles and household appliances.
Tuesday’s Conference Board survey also showed that more consumers plan to buy a home in the next six months, despite soaring borrowing costs. The steady rise in consumer purchase intentions could bring some stability to the economy in the short term.
But there are signs that the Federal Reserve’s aggressive interest rate hikes are beginning to cool the job market, with a drop in the share of consumers seeing jobs as “abundant” and an increase in the number of those who are say the job was “hard to get”.
“The biggest risk is the unknown lagged effects of cumulative Fed tightening and the economy may not feel the full effects until next year when recession risks are high,” said economist Jeffrey Roach. chief 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 polled by Reuters had forecast the index at 106.5. The decline in confidence was seen across all age groups, but more pronounced in the 35-54 and 55+ cohorts.
Regionally, there were marked declines in Florida, likely due to Hurricane Ian, and Ohio. Consumer 12-month inflation expectations rose to 7.0%, likely reflecting a recent reversal in gasoline prices after falling over the summer from 6.8% last month. Food is also very expensive.
Stubbornly high inflation and waning confidence are a blow to President Joe Biden and Democrats’ hopes of retaining control of Congress in the Nov. 8 midterm elections.
The Fed, which is fighting the fastest rising inflation in 40 years, raised its benchmark overnight interest rate from near zero in March to the current range of 3.00% at 3, 25%, the fastest pace of policy tightening in a generation or more. This rate should end the year in an average range of 4%, according to the US central bank officials’ own projections and recent comments.
The survey’s current situation index, based on consumers’ assessment of current business and labor market conditions, fell to 138.9, the lowest level since April 2021, from 150.2 in September.
Its Expectations Index, based on consumers’ short-term outlook for income, business and labor market conditions, fell to 78.1 from 79.5 last month. The expectations index remains below 80, a level associated with a recession and suggests that the risks of a slowdown could be on the rise.
The survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, fell to 32.5, the lowest since April 2021, against 38.1 in September.
This measure correlates to the Labor Department’s unemployment rate and remains high by historical standards. Data on unemployment benefits show that the labor market remains tight.
Stocks on Wall Street were trading higher. The dollar fell against a basket of currencies. US Treasury prices rose.
SPENDING PLANS ARE INCREASING
Even as consumers worried about the economic outlook, they remained interested in buying big-ticket items over the next six months, despite scrapping travel plans, suggesting that many Americans were planning to stay at home during the holiday season.
The share of consumers planning to buy motor vehicles rose to its highest level since July 2020. More consumers plan to buy appliances such as refrigerators, washing machines and vacuum cleaners.
“Consumers have abundant excess savings, and they’re willing to dip into that pile of money to keep real spending at least steady, even as inflation eats away at their real incomes,” said Scott Hoyt, senior economist at Moody’s Analytics. in West Chester, Pennsylvania. .
Consumers were also more inclined to buy a home, likely encouraged by a sharp slowdown in house price inflation.
But soaring mortgage rates remain an obstacle. The 30-year fixed mortgage rate averaged 6.94% last week, the highest in 20 years, from 6.92% the previous week, according to data from mortgage finance agency Freddie Mac.
A separate report on 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 month-to-month basis, prices fell 0.9% in August, the second consecutive monthly decline.
A third report from the Federal Housing Finance Agency showed house prices rose 11.9% in the 12 months to August after rising 13.9% in July. Prices fell 0.7% on a monthly basis after falling 0.6% in July. It was the first time since March 2011 that monthly prices showed consecutive declines.
“We expect house price inflation to moderate by the end of 2022, falling to single digits by year end and zero by the second quarter of 2023,” he said. said Nancy Vanden Houten, chief US economist at Oxford Economics in New York. “With home sales plummeting as deteriorating affordability pushes many buyers away, prices will need to adjust. However, inventories remain low and we believe this will maintain a floor below home prices.”
Reporting by Lucia Mutikani; Editing by Chizu Nomiyama and Andrea Ricci
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