Consumer confidence edged down in April, but still remains high
The Conference Board’s measure of consumer confidence edged modestly lower to 107.3 in April, coming in softer than economists had anticipated while easing from 107.6 in March. While still above the long-term historical average of around 95, consumers’ collective assessment of current conditions has fallen well below the peak reached in June 2021 of 128.9.
Consumers remain relatively upbeat about current economic conditions but have grown increasingly skeptical in their outlook for the latter half of the year.
Although inflation has become a significant concern over the past year, the Conference Board survey focuses on the labor market and personal income to a large degree. Against the backdrop of low unemployment, strong job creation, a surplus of job openings, and strong wage growth, a positive consumer view around those factors is not surprising. Other measures of the consumer mood that have a greater focus on inflation have deteriorated more notably.
The fact that confidence remains relatively strong is a sign of the resilience of consumers, but several risks still pose a threat to the near-term outlook. Americans are facing the highest inflation in four decades, which is outpacing wage gains and eroding consumer purchasing power.
The Russian invasion of Ukraine has also introduced a significant degree of geopolitical uncertainty and potential repercussions that could ripple across the global economy for some time. In an environment already challenged by supply constraints, the post-invasion surge in the prices of various commodities further exacerbated inflation pressures.
All of this prompted the Fed to rapidly ramp up expectations for rate hikes for the remainder of the year. The Fed’s move to begin tightening financial conditions was much needed but raises the specter of tightening cycles past and the potential risk of unintentionally choking off growth.
Although COVID-19 cases have fallen sharply in the United States in recent months and many Americans are becoming more mobile and gradually returning to more aspects of a pre-pandemic lifestyle, the pandemic’s effects are still being felt across the global economy. In terms of the global health risk, brighter days are ahead, but we aren’t collectively out of the woods.
The bottom line? Strong labor market conditions and income gains have provided a solid underpinning for consumers, and the decline in COVID-19 cases have emboldened many Americans to return to more of their pre-pandemic activities. Inflation and rising interest rates may dampen that outlook, as consumers feel the pinch of both. That’s likely to have repercussions for labor market conditions as well, as the Fed tries to navigate the narrow path to a soft landing while taking some of the heat out of the economy.
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