Consumers Shrug Off Inflation, Turn Less Gloomy About the Future in November

Consumers grew somewhat more optimistic about the future of the economy in November as expectations about inflation improved, but their sense of the current state of affairs worsened a bit.

That was the take from the Conference Board’s monthly consumer confidence index released on Tuesday.

The present situation index fell slightly to 138.2 from 138.6 in October. But the expectations index – a measure of how consumers feel about the short-term outlook for income, business and labor market conditions – rose to 77.8 from a downwardly revised reading of 72.7 in October.

Still, two-thirds of consumers surveyed still expect a recession to be “somewhat” or “very likely” within the next 12 months. That is consistent with many economists’ prediction for a mild downturn in 2024.

“Consumer confidence increased in November, following three consecutive months of decline,” said Dana Peterson, chief economist at the board. “This improvement reflected a recovery in the expectations index, while the present situation index was largely unchanged.”

“November’s increase in consumer confidence was concentrated primarily among householders aged 55 and up; by contrast, confidence among householders aged 35-54 declined slightly,” Peterson added. “General improvements were seen across the spectrum of income groups surveyed in November. Nonetheless, write-in responses revealed consumers remain preoccupied with rising prices in general, followed by war/conflicts and higher interest rates.”

Expectations of future inflation remained high but dropped slightly from October to 5.7% from 5.9% a month ago. However, that is well above current inflation of 3.2% and forecasts from the Federal Reserve and mainstream economists. It also comes after a month when gasoline prices have fallen to around $3 a gallon and below and as even sticky prices like apartment rents are beginning to fall across the country.

“As we saw in the holiday sales figures, the consumer is still spending but much depends on the job market,” said Jeffrey Roach, chief economist at LPL Financial. “As the labor market cools, investors should expect consumer spending to slow down. Also, markets should prepare for a weaker jobs report on December 8. All in, the data support the Fed’s likely decision to keep rates unchanged at next month’s meeting.”

Despite what they might tell survey takers, however, consumers continue to spend their money. They splurged over the Thanksgiving holiday, spending a total of $12.4 billion on Cyber Monday, an increase of 9.6% from 2022.

In the peak hour from 10 p.m. to 11 p.m. EST, consumers spent $15.7 million a minute, according to online analytics firm Adobe. The spending was fueled by major discounts in categories such as electronics (up to 31% off list price), toys (27%), apparel (23%), furniture (21%) and appliances (18%).

One thing that might make some consumers happy is that home prices continued to increase in September.

The S&P CoreLogic Case-Shiller national home price index rose by 3.9% annually in September, up from 2.5% a month earlier. Detroit posted the largest yearly increase, at 6.7%, followed by San Diego with a 6.5% increase.

“U.S. home prices continued their rally in September 2023,” said Craig J. Lazzara, managing director at S&P DJI. “Although this year’s increase in mortgage rates has surely suppressed the quantity of homes sold, the relative shortage of inventory for sale has been a solid support for prices.”

“Unless higher rates or exogenous events lead to general economic weakness, the breadth and strength of this month’s report are consistent with an optimistic view of future results,” he added.

The index reflects sales that occurred prior to the spike in mortgage rates in October that has since receded somewhat.

“The Case-Shiller index is a lagging indicator of the housing market, and it is expected that home price growth will slow in the fourth quarter of 2023,” said Bright MLS Chief Economist Lisa Sturtevant. “Higher rates and a typical seasonal slowdown in activity will mean fewer buyers in the market. At the same time, the number of new listings coming onto the market has started to increase in many markets.”

A report from the Census Bureau on Monday showed that new home prices fell to a median $409,300 in October from $418,800 a month earlier. Still, new homes are proving a viable alternative for homebuyers as the inventory of existing homes for sale remains limited.

“Home builders continue to benefit from the lack of existing homes, which has sent more buyers to the new home market,” said Mark Vitner, chief economist at Piedmont Crescent Capital. “New homes accounted for 16.7% of overall single-family home sales in October, compared to 12.7% a year ago. New home sales are also proving more resilient to rising mortgage rates, as home builders are able to buy down mortgage rates to help reduce the sting of rising interest rates.”