Consumer confidence rose to the highest level since April as gas prices fell

Consumer confidence rebounded again in December to its highest level since April, reversing consecutive declines in October and November as Americans grew more optimistic about the economy and jobs.

The Conference Board’s consumer confidence index settled at 108.3 in December, up from 101.4 the previous month, while consumers’ perceptions of business conditions and income expectations also rose.

Inflation expectations in December fell to their lowest level since last September, according to the Conference Board, as gas prices fell.

Gas prices fell about 40% to $3.11 on Wednesday after hitting a record high in June, according to AAA.

“Inflation expectations fell in December to the lowest level since September 2021, with the recent declines in gas prices a major driver,” said Lynn Franco, senior director of economic indicators at The Conference Board.

“Vacation intentions have improved, but plans for big-ticket home and appliance purchases have cooled further. This shift in consumer preference from big-ticket goods to services will continue in 2023, as will headwinds from inflation and higher interest rates.”

Inflation expectations fell this month even as prices for everything from groceries to haircuts continued to rise – something the Federal Reserve is watching closely as the central bank tries to fend off rising inflation to become more entrenched in the minds of consumers.

Long-term inflation expectations have not jumped, although the Fed is watching this action closely as inflation remains high.

Consumer confidence and expectations about the economy have risen in recent months, although they are still below pre-pandemic levels. (Source: Conference Board)

In a note to clients, Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote on Wednesday that consumer expectations remain about 20 points below pre-pandemic levels and noted that confidence and spending have not been tracked consistently since 2016.

“Although the current level of the expectations index is record steady – on a long-run basis – with real consumption rising around 2%,” Shepherdson wrote. This is in line with our outlook for 2023.

However, the conference board noted that the current forecast level remains near 80, which is a level associated with a recession.

Consumer confidence is looking to pick up as Federal Reserve Chairman Jerome Powell told reporters last week that a soft landing – in which inflation slows but a recession is avoided – is still possible, though he warned that keeping interest rates higher for longer would dampen the outcome of that scenario. .

“To the extent that we need to keep rates higher and keep them there longer and inflation moves higher and higher, I think that narrows the runway,” Powell said at a news conference earlier this month. “But lower inflation readings, if sustained in time, could certainly make it more possible.”

Powell also said that lower inflation would likely require a sustained period of growth below the general trend and deterioration in the labor market, though he did not characterize this forecast as a recession forecast.

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