by Robert Hughes
The Consumer Confidence Index from The Conference Board fell again in February but remains at a historically favorable level overall. The composite index decreased 0.6 points or 0.5 percent to 110.5 (see first chart). From a year ago, the index is up 16.1 percent. The decline in the composite index was driven by the expectations component. The expectations component lost 1.3 points, taking it to 87.5 while the present-situation component increased 0.6 points to 145.1 (see first chart). The total index and both components remain well above typical recession lows but also remain somewhat below record highs.
Within the expectations index, expected business conditions improved from January while expected employment conditions and expected income fell slightly. The index for expectations for better business conditions fell 0.2 points to 23.4 while the index for expected worse conditions declined 1.6 points, leaving the net (expected business conditions better – expected business conditions worse) up 1.4 points to 5.3. The outlook for the jobs market weakened slightly in February as the expectations for more jobs index fell 0.8 points to 21.3 while the expectations for fewer jobs index rose by 1.3 point to 18.1, putting the net down 2.1 points to 3.4. Still, net positive readings are a favorable result.
Big Ticket Purchases
Buying plans for autos, homes, and major appliances all ticked down slightly in the latest month. Overall, vacation plans are noticeably lower versus pre-pandemic levels while auto buying is slightly lower and home buying plans are above (see second chart). Elevated prices and rising interest rates are likely to be headwinds over time for both autos and home purchases.
For the present situation index, current business conditions improved while employment conditions weakened slightly. The net reading for current business conditions (current business conditions good – current business conditions bad) was -6.0 in February, up from -7.4 but still a net negative. Current views for the labor market saw the jobs hard to get index decrease slightly, falling points to 11.8 but the jobs plentiful index fell a larger 1.2 points to 53.8 resulting in a 1.0-point decline in the net to a still-strong 42.0. A net above 40 is considered strong by historical comparison.
Inflation expectations rose to 7.0 percent in February, up from 6.8 in January but below the recent high of 7.3 percent in November; expectations were 4.4 percent in January 2020. Inflation expectations remain extremely high as prices for many goods and services continue to rise at an elevated pace, largely due to labor and materials shortages and logistical bottlenecks. The extreme outlook for inflation is boosting pessimism among consumers.
The outlook for the economy is for continued expansion. However, ongoing shortages of materials, labor difficulties, and logistical problems are sustaining upward pressure on prices and weighing on consumers’ attitudes. A strong labor market offsets the negative views of inflation, resulting in generally moderate consumer confidence.