Key takeaways

  • Consumer confidence fell for the second consecutive month in November as high inflation dogs consumers entering the holiday season
  • Though holiday spending is off to a strong start, consumers indicate reticence to spend on big-ticket items in the next six months
  • However, consumers largely remain confident in the labor market, which has held strong throughout 2022

The Conference Board released its Consumer Confidence Survey results Tuesday, showing that consumer confidence has slipped two months in a row.

The decline coincides with the upcoming holiday season as inflation and high interest rates continue to bash wallets. A swath of tech sector layoffs may also have dampened spirits. Households expressed less desire to spend on big-ticket items ahead of the holidays, potentially paving the path for an economic recession.

Still, the survey finds that positivity percolates in the labor markets, potentially limiting any anticipated downturns.

November’s consumer confidence results

The Conference Board’s Consumer Confidence Index fell from 102.2 in October to 100.2 this month. That decline marks the lowest reading since July, though it’s marginally above analysts’ predictions.

A reading of 100 or higher suggests consumer optimism about the economy and may occur alongside increased spending. Pre-pandemic, the Index frequently topped 120 as confidence and spending remained relatively elevated.

The declining confidence clustered in lower-income households and the over-55 age group. These groups (particularly lower-income households) have suffered more as the highest inflation in 40 years has snarfed up already-tight budgets.

Additionally, 12-month inflation expectations rose to 7.2% from 6.9% in October, the largest increase in four months.

The Present Situation Index

The Conference Board’s Present Situation Index examines consumers’ sentiments regarding current business and labor market conditions. The Index declined from 138.7 to 137.4 in November.

Additionally, consumers’ assessment of current business conditions produced mixed results:

  • 18.2% said business conditions were “good,” up from 17.7%
  • 26.7% said business conditions were “bad,” up from 24%

However, labor market conditions were viewed more favorably:

  • 45.8% said jobs were “plentiful,” up from 44.8%
  • 13% said jobs were “hard to get,” reflecting no change from last month

The Expectations Index

The Conference Board’s Expectation Index measures consumers’ six-month outlook regarding income, business and labor market conditions. Overall, the index slumped from 77.8 to 75.4 in November.

Survey results showed that short-term business outlooks remain low:

  • 19.9% believe business conditions will improve, up marginally from 19.6%
  • 22.7% believe business conditions will worsen, a decline from 24.3%

That pessimism also bled into six-month expectations for the labor market:

  • 18.6% believe more jobs will become available, a decrease from 19.5%
  • 21.4% think fewer jobs lie on the horizon, up from 20.8%

Short-term income expectations also dropped in November:

  • 17.2% think their incomes will increase, a decline from 19.6%
  • 16.6% think their incomes will decrease, a rise from 15.2%

Unpacking this month’s consumer confidence scores

Lynn Franco, the Senior Director of Economic Indicators at The Conference Board, pinned declining confidence on fluctuating gas and food prices due to inflation.

Said Franco, “The Present Situation Index moderated further and continues to suggest the economy has lost momentum as the year winds down. Consumers’ expectations regarding the short-term outlook remained gloomy.”

She added that the Expectations Index falling below 80 “suggests the likelihood of a recession remains elevated.”

Franco also noted that, “Intentions to purchase homes, automobiles and big-ticket appliances all cooled.”

That aligns with a stubbornly expensive housing market as rising mortgage rates and high home values reduce affordability for many buyers. While housing prices have fallen somewhat from Covid-era highs, they remain elevated despite rising rates.

Overall, Franco expects that the high-inflation, high-rate environment will “continue to pose challenges to confidence and economic growth” into 2023.

October saw inflation rise 7.7% from a year earlier as the worst inflation in four decades rampages on. Meanwhile, the Fed has raised its key interest rate range 3.75% this year alone in the most rapid rate-hiking cycle in forty years.

Oxford Economics U.S. economist Gurleen Chadha agrees that lower confidence could spell less future growth. In a Tuesday research note, Chadha wrote that, “Consumers’ increased pessimism is consistent with our view that consumer spending and the broader economy are downshifting to a much slower growth path.”

Some, like Jeffrey Roach, chief economist at LPL Financial, think weakening confidence “foreshadows a recession” in the coming year.

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Consumer confidence doesn’t equate consumer spending

Though it appears consumer confidence is on the decline, many Americans amped up their spending heading into the holiday shopping season.

The National Retail Federation reported that Black Friday 2022 saw a record 196.7 million shoppers over the weekend. The trade group anticipates a 6-8% increase in holiday sales compared to last year. The final ticket could tally as high as $960.4 billion.

However, evidence suggests that elevated spending may not last for long.

Claire Tassin, a retail and ecommerce analyst at Morning Consult, suggests that inflation is hitting Americans where it really hurts. “We’re seeing a lot of people leaning on savings and debt to afford a lot of these purchases,” she said. Already, the holiday season has seen a spike in U.S. credit card debts.

Still, current indicators point toward an overall prosperous holiday season in 2022. J. Walker Smith of Kantar’s global consulting division adds that consumers are “not prepared yet to go into pandemic mode. There’s not a real sense of alarm among consumers right now.”

However, economists expect that high inflation and interest rates, alongside the prospect of a cooling job market, could weigh down the economy in early 2023.

Navigating declining confidence as an investor

Consumer spending is a major economic driver – and therefore, investors’ returns.

Though the NRF predicts that holiday spending will remain high this year, slipping consumer confidence could see spending plunge in early 2023. Even a strong labor market may not be able to prevent the decline amid tightening household budgets.

As an investor, that could mean tighter times ahead for you, too. Between high inflation and rising interest rates, many portfolios have taken the plunge in 2022 already. With the prospect of smaller business profits in the future, many investors are seeking smarter investments to see them through tough times.

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