Minneapolis
CNN Business
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US consumer confidence fell in October to its lowest level since July as higher borrowing costs and higher inflation weighed on household budgets.
The consumer confidence index fell to 102.5 from an improved 107.8 In September, according to information released by the Conference Board on Tuesday. Economists were expecting a reading of 106.5, according to Refinitiv estimates. A reading above 100 indicates consumers are optimistic about the economy. In February 2020, the Consumer Confidence Index was 132.6.
Consumer spending, which has driven the U.S. economy since the start of the Covid-19 pandemic, has seen high-end goods bought during the shutdown, followed by higher spending on travel and dining after the lockdown is lifted.
However, global supply and demand imbalances have now led to the highest inflation in a decade in the United States, which the Federal Reserve is trying to bring down with a series of jumbo-sized rate hikes. This, in turn, raised the cost of borrowing and increased the overall cost to consumers, some of whom have started to control their spending.
Consumer short term The outlook is “worrisome,” said Lynn Franco, senior director of economic indicators at the Conference Board.
“In particular, concerns about inflation, which has been declining since July, have resurfaced, with both gas and food prices acting as key drivers,” Franco said in a statement. “Looking ahead, inflation will continue to be a strong headwind to consumer confidence and spending, leading to a challenging holiday season for retailers.”
It has dimmed consumer optimism, not just in the current economic season, but in the coming months.
“There’s a real sense that people can delay purchases, but at the same time there’s going to be some purchases that can’t be delayed,” said Jason Reed, a finance professor at the University of Notre Dame. “If you think of your wallet share as a pie chart, people will continue to fluctuate in what they spend. And some things eat up more of that share of wallet — like food and transportation costs now — so I can imagine some other spending going down.
Consumers also say they feel more pessimistic about the job market, with respondents believing there are “a lot” of jobs with fewer jobs.
While the job market remains strong this year and into 2021, there are some signs of slowing.
In terms of big-ticket items, survey respondents said they were less likely to spend on travel in the next six months, but were more interested in purchasing homes, appliances and cars.
“With mortgage rates hovering around 7%, I’m surprised that interest in buying homes has picked up over the month,” Reed said. Although consumers are expecting further increases in mortgage rates and may be accelerating their home buying plans.
Prices began to rise in early 2021 and have hovered near 40-year highs for the past several months. In September, the consumer price index – which measures the price changes of a basket of consumer goods – was 8.2% higher than 12 months ago.
The latest CPI report shows that inflation has fully penetrated the services sector.
Stubbornly high inflation has forced the Federal Reserve to act aggressively, raising interest rates by 3.25 percent in six months. The central bank is expected to raise rates by another three-quarters of a percentage point at its policy meeting next week.
