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U.S. consumer confidence rose to an eight-month high in December as inflation retreated and the labor market remained strong, but fears of a recession persisted, resulting in fewer households planning to make big-ticket purchases over the next six months.
Other data on Wednesday showed sales of previously owned homes falling for a 10th straight month in November, the longest such stretch since 1999. The economy is on recession watch as the Federal Reserve, which is in the midst of its fastest interest rate-hiking cycle since the 1980s, wages war on inflation by trying to cool demand for everything from housing to labor.
“Consumers may be more confident than they were over the summer months, but they are still exhibiting more caution than was apparent in 2021,” said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina. “The outlook for consumer confidence in 2023 will hinge on the Fed’s ability to deliver a soft landing on what could be described as a narrow runway.”
The Conference Board said its consumer confidence index increased to 108.3 this month, the highest reading since April, from 101.4 in November. Economists polled by Reuters had forecast the index at 101.0. While the survey places more emphasis on the labor market, the rebound in confidence matched a similar rise in the University of Michigan’s sentiment index.
Consumers’ 12-month inflation expectations fell to 6.7 percent, the lowest since September 2021, from 7.1% last month. The improvement, which mostly reflected lower gasoline prices, was in line with recent data showing consumer prices increasing moderately in November. It also strengthened views that inflation, though still uncomfortably high, peaked months ago.
The present situation index, based on consumers’ assessment of current business and labor market conditions, rose to 147.2 from 138.3 last month. The expectations index, based on consumers’ short-term outlook for income, business, and labor market conditions, increased to 82.
