EconoFACTS

February 28, 2023 | 10:35

Americans Are Less Confident but Inflation Expectations Are Down

Economist

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Jennifer Lee

Senior Economist and Managing Director
Economics

(Read more)

Make way for some colder February data to offset that warm January ....

Let me get this straight ..... the U of Michigan's consumer sentiment index has been improving for three months in a row; and now, the Conference Board's measure has fallen for two months in a row? Ok got it.

Yes, the Conference Board's consumer confidence index unexpectedly fell in February, down 3.1 pts to a 3-month low of 102.9. This is a little disturbing given that this survey is more jobs-based. How one feels about the here and now (aka the "present situation") rose for the third straight month to a 10-month high of 152.8, but the future was more concerning. The "expectations" component took a 6.3 pt drop to a 7-month low of 69.7.

Oddly, the jobs picture was still ok. When asked if jobs were plentiful, more survey respondents raised their hand (over half of them), while fewer did so when ask if they find jobs harder to come by. The net jobs differential improved.... again. So this means that the official jobless rate could dip from its current half-century low of 3.4%... we will find out on March 10th. Normally, there would be much rejoicing on the streets of America but these are far from normal times. We all know the drill..... 'the labor market is too tight; the labor market is imbalanced, demand for labor continues to outstrip the supply, etc etc, so, we need to keep rates elevated for longer.'

Yet, inflation expectations fell to a near 2-year low.

Buying plans for big-ticket items such as cars, major appliances, and vacation plans, took a step back. Plans to buy a home faltered, even as home prices continued to slide. The S&P CoreLogic Case-Shiller home price index covering the country's 20 largest metropolitan areas, fell 0.5% in December, the sixth decline in a row. Prices were down in every metro area, with Vegas taking the biggest hit (-1.5%), followed by Phoenix (-1.3%), then San Francisco (-1.2%). From a year ago, prices are up just 4.6%, the thinnest figure since mid-2020. There are a couple of areas worth noting: San Francisco prices are below year-earlier levels for the second month in a row, which we haven't seen since 2019, and Seattle just slipped below last year's level.

What does this all mean? I'm not sure, frankly. Despite the "good times" now, with a strong job market, perhaps concerns that the Fed will cause a recession with its tight monetary policies are worrying this batch of consumers. So maybe it is not a bad thing to cause some red flags to pop up in one's mind?

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Side note: Buying plans may be a little uncertain but that cannot be gleaned from the latest trade report. The advance estimate for the goods trade deficit widened to a 3-month high of $91.5 bln. Exports actually rose for the first time in five months, jumping 4.2% in January, the biggest increase since March, with higher shipments out of all major categories such as industrial supplies and auto-related parts. However, the rebound was offset by another pickup in imports, with the latest rise of 3.4% also the largest since last March. The details were notable: consumer goods imports (ex autos) rose nearly 6½%, on the heels of a near-7% jump in December. Outside of the pandemic, that is the strongest back-to-back increase since 2015. And, auto parts imports accelerated 9.0% for the second month in a row. In other words, there is still decent demand for consumer-related items.

Table 1 - United States — Consumer Confidence Index

(1985 = 100)

Source: BMO Economics, Haver Analytics