After improving for the previous two months, US consumer confidence weakened in October as concerns about inflation took hold.
The Conference Board reported Tuesday that its consumer confidence index fell to 102.5 in October from 107.8 in September. Consumers had grown more confident in the two previous months as rising gas prices moderated slightly even as the costs for other essential items remained elevated.
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The business research group’s present situation index, which measures consumers’ assessment of current business and labour market conditions, fell sharply to 138.9 from 150.2 in September.
The board’s expectations index – a measure of consumers’ six-month outlook for income, business and labour conditions – dipped to 78.1 from 79.5 last month.
Lynn Franco, the Conference Board’s senior director of economic indicators, said a reading below 80 for the expectations index is a level associated with recession, suggesting that risk appears to be gaining momentum.
The government reported recently that inflation in the United States accelerated in September. The cost of housing and other necessities has intensified pressure on families, wiping out pay gains and all but ensuring that the Federal Reserve will keep raising interest rates aggressively.
Since March, the Fed has implemented its fastest pace of rate increases in decades to try to curb inflation, which has punished households with soaring costs for food, petrol, rent and other necessities.
Drag on consumer spending
In late September, the Fed boosted its benchmark short-term rate, which affects many consumer and business loans, to a range of 3 percent to 3.25 percent, the highest level since early 2008. It was the central bank’s third straight three-quarter point increase and most economists and analysts expect more increases before the year ends, including another potential 0.75 percentage point increase when the Fed meets next week.
Franco said inflationary pressures will continue to be a drag on confidence and spending, “which could result in a challenging holiday season for retailers.”
This month, the government reported that the pace of sales at US retailers was unchanged in September from August. Rising rents and food prices chipped away at money Americans were willing to spend elsewhere.
Despite the downturn in overall confidence, Franco noted that consumers’ intentions to buy big-ticket items like major appliances and cars rose slightly this month.
General Motors reported Tuesday that its third-quarter net profit rose 36.7 percent on strong sales.
Chief Financial Officer Paul Jacobson said the company isn’t seeing any sign that demand for new vehicles is slowing despite higher interest rates and inflation. “Pricing remains strong, demand remains strong for our products,” he told reporters on Tuesday.
The Conference Board also noted that plans to buy homes also ticked up this month. That’s a somewhat surprising development as sales of existing homes have fallen for eight straight months with long-term US mortgage rates climbing near 7 percent last week.