CNN
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Consumer confidence increased for the second consecutive month in September, What the moderation of gasoline prices and the hope that inflationary pressures are easing helped lift the collective spirits of the nation.
The Conference Board reported Tuesday that its benchmark index rose to 108 from a revised 103.6 in August, the highest since April.
The monthly survey found that Americans feel less pessimistic in both their assessment of current conditions and their prospects for the future. The current status index portion of the survey increased from 145.3 to 149.6. The Outlook Index, which is based on the short-term economic outlook, rose from 75.8 to 80.3.
The reading is good news, as the consumer outlook has been affected lately by growing fears of an economic downturn. Last Thursday, the Conference Board said its Leading economic index jagged its sixth straight drop, which the organization’s senior director of economics says is “potentially a sign of a recession.” The index provides visibility into a variety of economic activities, ranging from jobs to manufacturing to markets.
The consumer confidence index is just a constellation of data points that economists and investors will have to digest this week. The third and final look of the Bureau of Economic Analysis at the GDP of the second quarter will be released on Thursday. Barring an upward revision that finds the economy expanding rather than contracting, US economic activity will have fallen for two consecutive quarters, a commonly used, though unofficial, criterion to indicate that the country is in a recession.
On Friday, the BEA will also release its personal consumption expenditures index, the Federal Reserve’s preferred inflation benchmark, and the University of Michigan will report on consumer confidence.
Looking ahead, improving confidence may bode well for consumer spending in the final months of 2022, but inflation and interest rate hikes remain strong headwinds to near-term growth. said Lynn Franco, senior director of economic indicators at The Conference Board. she said in a statement.
Analysts said much of the September improvement could be attributed to lower gasoline prices and continued high demand for workers. “We’ve seen a drop in gas prices for some time … and we’ve had a pretty strong job market,” said Charlie Ripley, senior investment strategist at Allianz Investment Management.
“We have been surprised by how correlated consumer sentiment has been with energy costs and fuel costs,” said Keith Buchanan, portfolio manager at Globalt Investments. “It makes people feel better when the weekly stop at the gas pump costs 30% less than it did three months ago.”
Although the national average price of a gallon of gasoline recently turned around, breaking a 99 day streak of falling prices, remains well below The June record of $5.02.
The Conference Board found that a higher percentage of people surveyed in September than in August said jobs were “abundant,” while a slightly smaller proportion characterized jobs as “hard to come by.” The survey found that home purchase intentions were down, while car and home appliance purchase intentions were up.
“It seems consumers aren’t too concerned,” said Melissa Brown, global director of applied research at Qontigo. “It suggests an economy that may continue to grow, but I think the specter of inflation is out there and outweighing other good news.”
The Conference Board found that 12-month average inflation expectations fell to 6.8% in September from 7% in August. “Concerns about inflation dissipated further in September… and are now at their lowest level since the beginning of the year,” Franco said.
However, even with this improvement, it still suggests that Americans expect inflation to stay high for longer. In the Federal Reserve’s Summary of Economic Projections released last week, officials’ expectations for headline PCE inflation in 2023 fell to a range between 2.4% and 4.1%. that’s below the current reading of 6.3%.
“We’re realizing that interest rates will need to stay higher for longer,” Brian Mulberry, client portfolio manager at Zacks Investment Management. “You’re seeing it reflected in the volatility of prices in the market at the moment… People are really trying to understand what reality is.”
“There are a lot of questions about, what does this inflationary environment do to consumer behavior?” Buchanan said.
He added that the Fed’s hope for a soft landing is based on how well American households respond to the effects of tighter monetary policy and how well they can handle high prices and higher borrowing costs.
“How difficult that landing will be will largely depend on how rigid and resilient consumer spending and behavior becomes over the next 12 months,” he said.