U.S. consumer confidence rose to an eight-month high in December as inflation retreated and the labor market remained strong, according to a survey released on Tuesday by the Conference Board. The consumer confidence index increased to 108.3 this month, the highest reading since April, from 101.4 in November. Economists polled by Reuters had forecast the index at 101.0.
The survey showed that consumers’ assessment of current business and labor market conditions improved, as well as their short-term outlook for income, business, and labor market conditions. Consumers also expressed less concern about the impact of higher prices and interest rates on their spending plans.
However, the survey also revealed that consumers still perceived a high probability of a recession in the next year, and were less likely to plan big-ticket purchases such as motor vehicles and houses over the next six months. The survey suggested that consumers were more confident than they were over the summer months, but still cautious about the future.
Inflation moderates in November after hitting 31-year high
The rebound in consumer confidence was partly driven by a moderation in inflation in November, after it reached a 31-year high in October. The consumer price index (CPI) rose 0.8% in November from the previous month, and 6.8% from a year ago, the largest annual increase since June 1990. However, the core CPI, which excludes food and energy, rose 0.5% in November from the previous month, and 4.9% from a year ago, slightly lower than the expectations of economists.
The slowdown in inflation was mainly due to lower gasoline prices, which fell 6.8% in November from the previous month, as global oil prices declined. Other categories that showed smaller price increases in November included food, apparel, and medical care. However, some categories that showed larger price increases in November included shelter, transportation, and recreation.
The moderation in inflation was in line with recent data showing a slowdown in economic growth and consumer spending in the fourth quarter, as well as a cooling in the labor market in November. The Federal Reserve, which has been raising interest rates to combat inflation, is expected to announce another rate hike on Wednesday, and signal a faster pace of tightening in 2023.
Labor market remains tight despite slower job growth
The survey also showed that consumers’ assessment of the labor market improved in December, despite a slowdown in job growth in November. The present situation index, based on consumers’ evaluation of current business and labor market conditions, rose to 147.2 this month from 138.3 in November. The percentage of consumers who said jobs were “plentiful” increased to 54.9% from 52.8%, while the percentage who said jobs were “hard to get” decreased to 10.5% from 11.8%.
However, the labor market also showed signs of cooling in November, as nonfarm payrolls increased by 210,000, well below the expectations of economists and the lowest gain since December 2020. The unemployment rate fell to 4.2%, the lowest since February 2020, but partly due to a decline in the labor force participation rate. The average hourly earnings rose 0.3% in November from the previous month, and 4.8% from a year ago, slightly lower than the expectations of economists.
The labor market remains tight, as employers face difficulties in finding and retaining workers amid the ongoing pandemic, supply chain disruptions, and labor shortages. The number of job openings reached a record high of 11 million in October, while the number of quits also reached a record high of 4.4 million, indicating high worker confidence and mobility.
Consumers more optimistic about short-term outlook, but still wary of recession
The survey also showed that consumers’ expectations for the next six months improved in December, as they anticipated better income, business, and labor market conditions. The expectations index, based on consumers’ short-term outlook for income, business, and labor market conditions, increased to 82.4 this month from 76.7 in November. The percentage of consumers who expected business conditions to improve over the next six months increased to 19.9% from 18.1%, while the percentage who expected business conditions to worsen decreased to 12.4% from 14.6%.
Consumers also expected more job opportunities and higher income in the near future. The percentage of consumers who expected more jobs in the next six months increased to 19.1% from 17.8%, while the percentage who expected fewer jobs decreased to 14.4% from 16.4%. The percentage of consumers who expected their income to increase in the next six months increased to 21.5% from 19.9%, while the percentage who expected their income to decrease decreased to 7.6% from 8.7%.
However, consumers also expressed a high level of concern about the possibility of a recession in the next year, and were less inclined to make major purchases over the next six months. About two-thirds of consumers surveyed this month said a recession was “somewhat” or “very likely” to happen in the next year, unchanged from November. The percentage of consumers who planned to buy a motor vehicle in the next six months decreased to 10.2% from 11.3%, while the percentage who planned to buy a house decreased to 5.9% from 6.4%.
The survey indicated that U.S. consumer confidence rebounded in December as inflation eased and the labor market remained strong, but fears of a recession persisted, resulting in fewer households planning to make big-ticket purchases over the next six months. The survey suggested that consumers were more confident than they were over the summer months, but still cautious about the future.