Consumer Expectations Remained at Recessionary Levels in November

The Consumer Confidence Index from The Conference Board fell for the second consecutive month in November. The composite index decreased by 2.0 points, or 2.0 percent, to 100.2 (see first chart). The index is down 10.5 percent from November 2021 and 22.3 percent from the recent peak of 128.9 in June 2021. Both major components of the consumer confidence index declined in November.

The expectations component dropped 2.5 points, or 3.2 percent, to 75.4 (see first chart), while the present-situation component – one of AIER’s Roughly Coincident Indicators – sank 1.3 points, or 0.9 percent, to 137.4 (see first chart). The present situation index is off 4.8 percent over the past year while the expectations index is down 16.4 percent from a year ago. The present situation index remains at a historically favorable level while the expectations index remains consistent with prior recessions (see first chart).

Within the expectations index, two of the three components weakened versus October. The index for expectations for higher income fell 2.4 points to 17.2, and the index for expectations for lower income rose 1.4 points to 16.6, leaving the net (expected higher income – expected lower income) down 3.8 points at 0.6.

The outlook for the jobs market deteriorated in November as the expectations for more jobs index decreased by 0.9 points to 18.6, and the expectations for fewer jobs index rose by 0.6 points to 21.4, putting the net down 1.5 points to -2.8.

On the positive side, the index for expectations for better business conditions rose 0.3 points to 19.9 and the index for expected worse conditions fell 1.6 points, leaving the net (expected business conditions better – expected business conditions worse) up 1.9 points but still at a -2.8 reading.

Current business conditions and current employment conditions had mixed results within the present situation index. The net reading for current business conditions (current business conditions good – current business conditions bad) was -8.5 in November, down from -6.3 in October. Current views for the labor market saw the jobs hard to get index hold at 13.0 while the jobs plentiful index rose 1.0 points to a solid 45.8 reading. The net index (jobs hard to get – jobs plentiful) added one point to 32.8 in November.

According to the report, “The Present Situation Index moderated further and continues to suggest the economy has lost momentum as the year winds down.” Furthermore, “Consumers’ expectations regarding the short-term outlook remained gloomy. Indeed, the Expectations Index is below a reading of 80, which suggests the likelihood of a recession remains elevated.”

The one-year ahead inflation expectations rose 0.3 percentage points to 7.2 percent in November from 6.9 percent in October (see second chart). The rise was largely a function of higher food and gasoline prices. Notably, the short-term inflation expectations remain below the recent peaks of 7.9 percent in March and June 2022. Furthermore, while the pattern of movements between The Conference Board measure and a similar measure from the University of Michigan Survey of Consumers is similar, the overall level from the Michigan survey is much lower (though still elevated). Importantly, the longer-term inflation expectations survey from Michigan remains well anchored and consistent with results seen over the last 25 years (see second chart). Elevated rates of price increases continue to drive an aggressive Fed tightening cycle, sustaining the risk of a recession. Weak consumer attitudes and fallout from the Russian war in Ukraine further complicate the economic outlook. Caution is warranted.

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