Despite high inflation, rising interest rates that have made credit cards and mortgages more expensive, and growing anxiety about a possible recession, consumer confidence in the United States rebounded this month to end the year on a high note.
According to the Conference Board, its consumer confidence index increased to 108.3 in December, up from 101.4 in November. The index has risen sharply, reaching its highest level since April. The figure for last month was the lowest since July.
The business research group’s present situation index, which measures consumers’ perceptions of current business and labour market conditions, also increased this month, rising to 147.2 from 138.3 in November.
The board’s expectations index increased to 82.4 from 76.7, reflecting consumers’ six-month outlook for income, business, and labour conditions. Readings near or below 80 indicate a recession.
According to Lynn Franco, senior director of economic indicators at the Conference Board, inflation expectations fell in December to their lowest level since September of last year, owing primarily to recent drops in gas prices. The number of people planning to take vacations increased, while those planning to buy homes and large-ticket items decreased.
“This shift in consumer preference toward services will continue in 2023, as will headwinds from inflation and interest rate hikes,” Franco said.
It’s been difficult to get a good read on recent consumer behaviour.
The government reported last week that as the holiday shopping season began, Americans cut back sharply on retail spending. High prices and rising interest rates are forcing families, particularly lower-income households, to make more difficult purchasing decisions.
Retail sales fell 0.6% between October and November, following a 1.3% increase the previous month. Americans, on the other hand, opened their wallets on Black Friday and over the Thanksgiving weekend. According to MasterCard Spending Pulse, spending on Black Friday increased 12% year on year, though this figure is not adjusted for inflation.
According to Adobe Analytics, Americans increased their online spending by 5.8% year on year on “Cyber Monday” earlier this week.
Americans have been resolute in their spending since inflation first began to rise nearly 18 months ago, but their ability to maintain that pace during a period of high inflation may be waning. Inflation has slowed from the four-decade high reached this summer, but it remains high enough to erode Americans’ purchasing power. In November, prices were 7.1% higher than a year ago.
As prices rise, an increasing number of households are increasing their use of credit cards – or “buy now, pay later” plans – and this cannot continue indefinitely.
Americans are also dipping into their savings, which rose sharply during the pandemic due to government stimulus checks and the postponement of travel and entertainment spending.
In October, the savings rate fell to 2.3%, the lowest level since 2005.
Mortgage rates have more than doubled in the last year, reducing people’s willingness to buy a home. According to the National Association of Realtors, sales of previously occupied U.S. homes slowed for the tenth consecutive month in November. Sales fell 35.4% from November of last year.
What exactly is consumer confidence?
Consumer confidence refers to Americans’ beliefs and expectations about current and future economic conditions.
According to the nonprofit organisation, the Conference Board measures consumer confidence through a monthly survey of consumer attitudes, spending plans, and expectations for inflation, stock prices, and interest rates now and in the next six months.