Summary: US consumer confidence softens further in February; University of Michigan index substantially below consensus figure; views of present conditions, future conditions both deteriorate; fall attributed “weakening personal financial prospects”; may be “amber signal” something not right in “hike narrative”.
US consumer confidence started 2020 at an elevated level but, after a few months, surveys began to reflect a growing unease with the global spread of COVID-19 and its reach into the US. Household confidence plunged in April 2020 and then recovered in a haphazard fashion, generally fluctuating at below-average levels according to the University of Michigan. The University’s measure of confidence had recovered back to the long-term average by April 2021 but then it plunged again in the September quarter and has since remained at historically low levels.
The latest survey conducted by the University indicates confidence among US households further softened on average in February. The preliminary reading of the Index of Consumer Sentiment registered 61.7, substantially below the generally expected figure of 67.5 and January’s final figure of 67.2. Consumers’ views of current conditions and expectations regarding future conditions both deteriorated in comparison to those held at the time of the January survey.
“The recent declines have been driven by weakening personal financial prospects, largely due to rising inflation, less confidence in the government’s economic policies and the least favourable long term economic outlook in a decade,” said the University’s Surveys of Consumers chief economist, Richard Curtin. He noted sentiment in higher-income households accounted for the month’s entire deterioration.
US Treasury bond yields moved noticeably lower on the day, reversing much of the previous day’s rises at the long end. By the close of business, the 2-year Treasury yield had shed 7bps to 1.51%, the 10-year yield had lost 9bps to 1.94% while the 30-year yield finished 7bps lower at 2.25%.
NAB senior economist Tapas Strickland said some observers would take the report’s figures “as an amber signal that something is not right in the hike narrative. No doubt inflation and a decline in real wages is a factor.”
Less-confident households are generally inclined to spend less and save more; some decline in household spending could be expected to follow. As private consumption expenditures account for a majority of GDP in advanced economies, a lower rate of household spending growth would flow through to lower GDP growth if other GDP components did not compensate.