Consumer confidence rebounded in December to its highest level since April, reversing consecutive declines in October and November as Americans grew more optimistic about the economy and jobs.
The Conference Board Consumer Confidence Index came in at 108.3 in December, up from 101.4 the previous month, while consumer sentiment on business conditions and earnings prospects also rose.
Inflation expectations fell in December to their lowest level since last September, when gas prices fell, according to the Conference Board.
Gas prices fell nearly 40% to $3.11 on Wednesday, according to the AAA, after hitting a record high in June.
“Inflation expectations fell in December to their lowest level since September 2021, with the recent drop in gas prices being a key driver,” said Lynn Franco, senior director of economic indicators at The Conference Board.
“Holiday intentions improved, but plans to buy houses and expensive appliances continued to cool. This shift in consumer preference from expensive items to services will continue in 2023, as will headwinds from inflation and interest rate hikes.”
Inflation expectations eased this month, although the prices of everything from groceries to haircuts remain high – something the Federal Reserve is watching closely as the central bank tries to stave off higher inflation that’s taking hold in consumers’ minds .
Longer-term inflation expectations have not spiked, although the Fed is watching this move closely as high inflation persists.
Consumer confidence and expectations for the economy have increased in recent months but still remain below pre-pandemic levels. (Source: The Conference Board)
In a note to clients, Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote that consumer expectations on Wednesday are still about 20 points below pre-pandemic levels, noting that confidence and spending have not been consistently tracked since 2016 .
“Although for the record, the current level of the expectancy index is consistent – based on the long-term relationship – with an increase in real consumption of around 2%,” Shepherdson wrote. “That corresponds to our forecast for 2023.”
The story goes on
Still, the Conference Board noted that the current expectation level remains near 80, a level associated with a recession.
Consumer confidence is rising as Fed Chair Jerome Powell told reporters last week that a soft landing – in which inflation slows but a recession is avoided – is still possible despite warnings to keep interest rates high for longer would decrease the result for this scenario.
“To the extent that we need to keep interest rates higher and keep them there longer and inflation is going higher and higher, I think that narrows the runway,” Powell said at a news conference earlier this month. “But lower levels of inflation, if sustained over the long term, could certainly make that more possible.”
Powell also said that bringing inflation down is likely to require a sustained period of below-trend growth and a worsening job market, although he didn’t call this expectation a recession forecast.
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