Concerns over high inflation and a much grimmer assessment of the present state of the economy sent consumer confidence down to the lowest level in three months, indicating that economic growth slowed at the start of the fourth quarter, the Conference Board said Tuesday.
The Conference Board, a private think tank founded in 1916, said its consumer confidence index fell to 102.5 in October from a cowardly revised 107.8 for September.
The figure was well below the consensus forecast of 106.3. The index had jumped higher than expected in September from 103.6 to what was initially reported at 108.0, largely due to labor market strength and declining gas prices.
The Present Situation Index—which is based on household assessments of current business and labor market conditions—declined sharply to 138.9 from 150.2 last month. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—declined to 78.1 from 79.5, a historically low level.
“Consumer confidence retreated in October, after advancing in August and September,” said Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index fell sharply, suggesting economic growth slowed to start Q4. Consumers’ expectations regarding the short-term outlook remained dismal. The Expectations Index is still lingering below a reading of 80—a level associated with recession—suggesting recession risks appear to be rising.”
Inflation was a big driver of the decline in the perception of the current situation, Franco said.
“Notably, concerns about inflation—which had been receding since July—picked up again, with both gas and food prices serving as main drivers. Vacation intentions cooled; however, intentions to purchase homes, automobiles, and big-ticket appliances all rose,” Franco said.
High prices could make the holiday season challenging for retailers. A survey by Deloitte found consumers expect to spend the same amount as last year while purchasing fewer gifts because of high inflation.
“Looking ahead, inflationary pressures will continue to pose strong headwinds to consumer confidence and spending, which could result in a challenging holiday season for retailers. And, given inventories are already in place, if demand falls short, it may result in steep discounting which would reduce retailers’ profit margins,” Franco said.
The assessment of current business conditions was less favorable in October, becoming more deeply net negative as the share saying conditions are good fell to 17.5 percent from 20.7 percent and the share saying they are bad rose to 24 percent from 20.9 percent.
The present situation measure of the labor market remains positive but is less upbeat. The share saying jobs are plentiful fell to 45.2 percent from 49.2 percent. The share saying jobs are hard to get rose to 12.7 percent from 11.1 percent.
The expectations side of the survey, which asks consumers about what they think about conditions six months from now, showed a deepening pessimism. The share expecting business conditions to worsen rose to 23.9 percent from 21.9 percent. This was somewhat offset by a rise in the share saying conditions will improve, from 18.6 percent to 19.2 percent.
Expectations for jobs were mixed. The share of consumers saying they anticipate fewer jobs six months from now rose to 20.8 percent from 17.8 percent. But the share expecting more jobs also rose from 17.4 percent to 19.4 percent. percent.
Consumers were mixed about the short-term business conditions outlook in October.
Income expectations were also mixed. The share expecting their income to be higher rose to 18.9 percent from 18.3 percent. The share expecting their income to fall also rose, climbing from 13.8 percent to 15.1 percent.
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