Cracks are apparent in the collective consumer mood, as U.S. consumer confidence declines in April

The Conference Board’s Consumer Confidence Index eased to 101.3 in April, extending a slow erosion in the collective consumer outlook since the beginning of the year. Despite the decline, the index remains moderately above its long-term historical average.

The survey provides some insights into the effects of the banking sector’s fallout in March. The rapid collapse of multiple institutions sent shockwaves through the financial sector, pressuring several other institutions in the aftermath. Policymakers’ rapid response to stem potential contagion risk appears to have been largely effective, reinstating a sense of relative stability in the banking sector and short-circuiting a potentially greater bank panic. Against that backdrop, the fact that confidence moderately dimmed isn’t surprising. If anything, the fact that the index avoided a more precipitous decline provides some gauge that the collective efforts of the Federal Reserve, Treasury Department, and FDIC were successful.

That being said, cracks are still apparent in the collective consumer mood.

There’s a growing sense that a potential recession is coming into view. A growing number of households believe that business conditions will deteriorate further and that employment conditions will soften as a result. Inflation worries remain with very little progress being made in terms of expectations for a softening in the pace of price increases in the months ahead.

Although consumers were slightly more optimistic about current conditions than in March, they remain pessimistic about the direction of the economy later this year. The Expectations component of the index remains near its lowest point in a decade and in the range typically associated with the onset of recession within 12 months.

Households – particularly those in the middle-to-upper income ranges – generally remain in a good financial position. But an ability to spend doesn’t necessarily translate to a willingness to do so. Given the skepticism about the near-term trajectory for growth and pessimism about inflation, softer expectations for purchases of big-ticket items, including homes and cars, won’t help to keep the economy moving forward. Indications that consumers are also reining in spending on vacations also suggests a “battening down the hatches” on discretionary spending.

The bottom line? Consumer confidence hasn’t fallen off a cliff but is slowly eroding. There’s a wide margin between consumers’ positive, but measured, assessment of current conditions and a growing skepticism that economic momentum will be sustained through the end of the year. Ironically, it’s the fear of what could happen and the resulting changes in spending behavior that can move the needle on recession risk from “possible” to “probable.”