US confidence picks up, ending the year on a high note

Despite high inflation, rising interest rates, and a possible recession, US consumer confidence has rebounded strongly.

US consumer confidence rebounded this month to end the year on a high note despite high inflation, rising interest rates that made credit cards and mortgages more expensive, and mounting anxiety over a potential recession. .

The Conference Board reported Wednesday that its consumer confidence index rose to 108.3 in December, from 101.4 in November. It was a strong rally, taking the index to its highest level since April. Last month’s figure was the lowest since July.

The business research group’s Current Situation Index, which measures consumers’ assessment of current business and working conditions, also rose to 147.2 this month from 138.3 in November.

The board’s expectations index, a measure of consumers’ six-month prospects for income, business and working conditions, rose to 82.4 from 76.7. Readings near or below 80 are associated with recession.

Lynn Franco, senior director of economic indicators for the Conference Board, noted that inflation expectations eased in December to their lowest level since September of last year, mainly due to recent declines in gasoline prices. The number of people who said they were planning to go on vacation increased, but the number of people who intended to buy expensive homes and appliances decreased.

“This shift in consumer preference from high-end items to services will continue into 2023, as will the headwinds of inflation and interest rate hikes,” Franco said.

headwinds

Getting a clear read on recent consumer behavior has been tricky.

The government reported last week that Americans slashed retail spending in November as the holiday shopping season began. High prices and rising interest rates are forcing families, particularly low-income households, to make tougher decisions about what to buy.

Retail sales fell 0.6 percent from October to November after a sharp 1.3 percent rise the previous month. However, Americans opened their wallets on Black Friday and over the weekend after Thanksgiving. Black Friday spending is up 12 percent compared to a year ago, according to MasterCard Spending Pulse, though that figure isn’t adjusted for inflation.

And on so-called “Cyber ​​Monday” earlier this week, Americans increased their online spending by 5.8 percent from a year earlier, Adobe Analytics said.

Americans have weathered their spending since inflation began soaring nearly 18 months ago, but the ability to keep up during a period of high inflation may have started to wane. Inflation has receded from a four-decade high reached in mid-year, but remains high enough to erode Americans’ purchasing power. Prices were 7.1 percent higher in November than a year ago.

A growing number of households are increasing their use of credit cards, or “buy now, pay later” plans as prices rise, and that can’t go on indefinitely.

Americans are also turning to savings, which have surged during the pandemic as government stimulus checks and deferred spending on travel and entertainment fattened bank accounts.

The savings rate in October fell to 2.3 percent, the lowest level since 2005.

The will to buy a home has waned with mortgage rates doubling in the past year. The National Association of Realtors reported Wednesday that sales of previously occupied US homes slowed for the 10th straight month in November. Sales fell 35.4 percent from November of last year.