U.S. consumer confidence fell to its lowest level since July in October as high borrowing costs and soaring inflation weighed on household budgets.
Consumer confidence fell to 102.5 from a revised 107.8 In September, according to data released by the Conference Board on Tuesday. Economists expected the index to be at 106.5, according to Refinitiv estimates. A reading above 100 indicates that consumers are optimistic about the economy. In February 2020, the consumer confidence index was 132.6.
Consumer spending, which has powered the U.S. economy, has remained strong since the start of the Covid-19 pandemic, buying a lot during the lockdown, as well as spending on travel and eating out once restrictions are lifted.
However, the global supply and demand imbalance has led to decades of high inflation in the United States, and the Federal Reserve is trying to reduce inflation through a series of large-scale interest rate hikes. That in turn drives up borrowing costs and increases overall spending by consumers, some of whom have begun to rein in spending.
consumer short-term The outlook remains “bleak”, said Lynn Franco, senior director of economic indicators at the World Enterprise Research Institute.
“It is worth noting that concerns about inflation — which have been fading since July — are on the rise again, with gas and food prices both key drivers,” Franco said in a statement. “Looking ahead, inflationary pressures will continue to be a strong headwind to consumer confidence and spending, which could create a challenging holiday season for retailers.”
Consumers are less optimistic about the current economic times and what is likely to happen in the coming months.
“People can indeed defer purchases, but at the same time, there are some purchases that can’t be put off,” said Jason Reed, a professor of finance at the University of Notre Dame. “If you think of your wallet share as a pie chart , then people will continue to shuffle their spending. Some things eat up a bigger share of the wallet — like food and transportation costs now — so I can imagine some other discretionary spending going down.”
Consumers also said they were more pessimistic about the labor market, with a lower percentage of respondents saying jobs were “adequate.”
While the job market has remained strong for much of this year and 2021, there are some signs of cooling.
When it comes to big-ticket items, respondents said they plan to spend less on travel in the next six months, but said they are more likely to buy homes, appliances and cars.
“Given that mortgage rates are hovering around 7%, I’m surprised to see an uptick in home purchase intentions during the month,” Reid said. “Although consumers may expect mortgage rates to rise further and accelerate their home buying plans. ”
Prices started surging in early 2021 and have been hovering near 40-year highs for the past few months. The consumer price index, which measures changes in the price of a basket of consumer goods, was 8.2% higher in September than it was 12 months earlier.
The latest CPI report also showed that inflation has penetrated more fully into the services sector, where price increases are harder to pull back.
Stubbornly high inflation prompted the Fed to act aggressively, raising its benchmark interest rate by 3.25 percentage points in six months. The central bank is expected to raise rates by another three-quarter percentage point at its policy meeting next week.