Conf. Board confidence index resumes falling, outlook “dismal”

25 October 2022

Summary: Conference Board Consumer Confidence Index falls in October, above expectations; views of present conditions, short-term outlook both deteriorate; consumers’ short-term outlook “dismal”.

US consumer confidence clawed its way back to neutral over the five years after the GFC in 2008/2009 and then went from strength to strength until late 2018. Measures of consumer confidence then oscillated within a relatively narrow band at historically high levels until they plunged in early 2020. Subsequent readings then fluctuated around the long-term average until March 2021 when they reached elevated levels. However, a noticeable gap has since opened between the two most-widely followed surveys.

The latest Conference Board survey held during the first three weeks of October indicated US consumer confidence has deteriorated after improving for two months. October’s Consumer Confidence Index registered 102.5 on a preliminary basis, lower than the median consensus figure of 105.5 as well as September’s final figure of 107.8.

Consumers’ views of present conditions and the near-future both improved again. The Present Situation Index increased from August’s revised figure of 145.3 to 149.6 while the Expectations Index rose from a revised figure of 75.8 to 80.3.

US Treasury yields finished the day higher. By the close of business, the 2-year Treasury bond yield had gained 3bps to 4.48%, the 10-year yield had added 1bp to 4.18% while the 30-year yield finished 5bps higher at 4.34%.

In terms of US Fed policy, expectations of higher federal funds rates over the next 12 months softened a little. At the close of business, November contracts implied an effective federal funds rate of 3.80%, 72bps higher than the current spot rate while December contracts implied a rate of 4.19%. November 2023 futures contracts implied 4.67%, 159bps above the spot rate.

Consumers’ views of present conditions and the near-future both deteriorated. The Present Situation Index fell from September’s revised figure of 150.2 to 138.9 while the Expectations Index declined from a revised figure of 79.5 to 78.1.

“Consumers’ expectations regarding the short-term outlook remained dismal,” said Lynn Franco, a senior director at The Conference Board. “The Expectations Index is still lingering below a reading of 80, a level associated with recession, suggesting recession risks appear to be rising.”

The Consumer Confidence Survey is one of two widely followed monthly US consumer sentiment surveys which produce sentiment indices. The Conference Board’s index is based on perceptions of current business and employment conditions, as well as respondents’ expectations of conditions six months in the future. The other survey, conducted by the University of Michigan, is similar and it is used to produce an Index of Consumer Sentiment. That survey differs in that it does not ask respondents explicitly about their views of the labour market and it also includes some longer-term questions.