Summary: Conference Board Consumer Confidence Index improves again in September; reading above consensus expectations; views of present conditions, short-term outlook both improve again; sentiment helped by strong job market, lower fuel prices; “may bode well for consumer spending” in remainder of 2022 but inflation, interest-rate rises “remain strong headwinds”.
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 September indicated US consumer confidence has improved for a second consecutive month. September’s Consumer Confidence Index registered 108.0 on a preliminary basis, greater than the median consensus figure of 104.5 as well as August’s final figure of 103.6.
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.
“Consumer confidence improved in September for the second consecutive month supported in particular by jobs, wages, and declining gas prices,” said Lynn Franco, a senior director at The Conference Board.
US long-term Treasury yields finished the day higher. By the close of business, the 10-year Treasury bond yield had gained 7bps to 3.84% and the 30-year yield had added 3bps to 3.69%. The 2-year yield finished 1bp lower at 4.27%.
In terms of US Fed policy, expectations of higher federal funds rates over the next 12 months softened. At the close of business, November contracts implied an effective federal funds rate of 3.72%, 64bps higher than the current spot rate while December contracts implied a rate of 4.03%. September 2023 futures contracts implied 4.53%, 145bps above the spot rate.
Franco noted “rising mortgage rates and a cooling housing market” had put a dent in consumers’ intentions to buy homes but not vehicles nor household appliances.
“Looking ahead, the improvement in confidence may bode well for consumer spending in the final months of 2022 but inflation and interest-rate hikes remain strong headwinds to growth in the short term.”
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.