Consumer confidence rose for the second straight month in September, like slowing gas prices and the hope that inflationary pressures may ease helped lift the nation’s collective spirits.
The Conference Board said on Tuesday that its core index rose to 108 from a revised 103.6 in August, its highest level since April.
The monthly survey found Americans feeling less pessimistic in both their assessment of current conditions and their outlook for the future. The survey’s current health index rose from 145.3 to 149.6. The expectations index, which is based on the short-term economic outlook, rose from 75.8 to 80.3.
The reading comes as welcome news as the consumer outlook has recently been marred by growing fears of an economic downturn. Last Thursday, the Conference Board released its leading economic index serrated its sixth straight decline, which the organization’s senior director of economics said was “potentially a recession signal.” The index provides visibility into a range of economic activities, ranging from jobs to manufacturing to markets.
The consumer confidence index is just one constellation of data that economists and investors will have to digest this week. The third and final look at GDP for the second quarter from the Bureau of Economic Analysis will be released on Thursday. Barring an upward revision that found the economy expanded instead of contracted, U.S. economic activity would have fallen for two consecutive quarters, a commonly used, though unofficial, yardstick that indicates the country is in recession.
On Friday, the BEA will also release its personal consumer spending index, the Federal Reserve’s preferred gauge of inflation. and the University of Michigan will report on consumer sentiment.
“Looking ahead, improving confidence may bode well for consumer spending in the final months of 2022, but inflation and rising interest rates remain strong near-term headwinds to growth,” Lynn Franco, senior director of economic indicators at The Conference Board , said in a statement.
Analysts said much of the improvement in September could be attributed to lower gas prices and continued strong demand for workers. “We’ve seen gas prices come down for some time … and we’ve had a pretty stable labor market,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.
“We were surprised by how correlated consumer confidence is with energy costs and fuel costs,” said Keith Buchanan, portfolio manager at Globalt Investments. “People feel better when a weekly gas station stop costs 30% less than it did three months ago.”
Although the national average price of a gallon of gas recently reversed course, snapping a 99-day losing streak, it remains well below June’s record high of $5.02.
The Conference Board found that the percentage of respondents in September was higher than in August said jobs were “abundant,” while a slightly smaller percentage characterized jobs as “hard to find.” The survey found that home purchase intentions have decreased, while car and appliance purchase intentions have increased.
“Consumers don’t seem too worried,” said Melissa Brown, global head of applied research at Qontigo. “It does suggest an economy that can continue to grow, but I think that specter of inflation is there and kind of overshadows other good news.”
The Conference Board found that 12-month average inflation expectations fell to 6.8% in September from 7% in August. “Inflation concerns dissipated further in September … and are now at their lowest level since the beginning of the year,” Franco said.
However, even with this improvement, it still suggests that Americans expect inflation to remain higher for longer. In the Federal Reserve’s Summary of Economic Projections released last week, staff expectations for core PCE inflation in 2023 fell to a range between 2.4% and 4.1%. This is down from the current reading of 6.3%.
“We’re seeing the realization that interest rates are going to have to stay higher for longer,” Brian Mulberry, client portfolio manager at Zacks Investment Management. “You’re seeing that reflected in the price volatility in the market right now … People are really trying to come to grips with what the reality is.”
“There are a lot of questions, what is this inflationary environment doing to consumer behavior?” Buchanan said.
He added that the Fed’s hope for a soft landing rests on how US households respond to the effects of tighter monetary policy and how well they can manage high prices and higher borrowing costs.
“How hard that landing will be will depend very, very heavily on how stable and resilient consumer spending and behavior becomes over the next 12 months,” he said.