‘Large Drops’ in American Consumer Confidence as Recession Signal Strengthens

A man shops at a supermarket in New York, on July 27, 2022. Andres Kudacki/AP Photo

Confidence about the state of the American economy has fallen among U.S. consumers, while expectations about the future remain at a level indicating an upcoming recession, according to a survey by The Conference Board, a nonprofit research group.

The Conference Board’s Consumer Confidence Index fell for the second consecutive month in February, to 102.9, down from 106 in January, according to a press release on Feb. 28. The Expectations Index, which is based on the consumers’ short-term outlook for income, labor market, and business conditions, declined from 76 in January to 69.7 in February. If the Expectations Index falls below 80, it is a signal of recession within the next year. During the past 12 months, the Expectations Index has been below 80 for 11 months.

According to Ataman Ozyildirim, senior director at the organization, the fall in consumer confidence reflected “large drops” in confidence among households earning $35,000 or more as well as households in the age demographic of 35–54.

The Present Situation Index, which looks at a consumer’s current assessment of labor market and business conditions, rose from 151.1 in January to 152.8 in February. Ozyildirim attributed this growth to a “more favorable view” of job availability.

“In fact, the proportion of consumers saying jobs are ‘plentiful’ climbed to 52.0 percent—back to levels seen in the spring of last year. However, the outlook appears considerably more pessimistic when looking ahead. Expectations for where jobs, incomes, and business conditions are headed over the next six months all fell sharply in February,” he said.

The survey found that 12-month inflation expectations among consumers was at 6.3 percent. Though it is down from the 6.7 percent recorded in January, the inflation rate continues to remain elevated.

Household Spending, Consumer Sentiment

The uncertainty regarding the U.S. economy is dampening consumer confidence and spending expectations.

According to data from the Federal Reserve Bank of New York, median household spending growth expectations fell to 5.7 percent in January 2023 from 5.9 percent in December, which is the lowest level since January 2022. This is the third consecutive decline in expectations.

Meanwhile, median expected growth in household income fell by 1.3 percentage points, to 3.3 percent, which is the biggest one-month drop in the past 10 years.

“Year-ahead expectations about households’ financial situations deteriorated slightly, with more respondents expecting to be worse off a year from now,” according to a press release on Feb. 13.

The Michigan Index of Consumer Sentiment registered a “modest” 3 percent growth in February over the previous month. However, the index continues to remain 20 points below its historical average.

US Recession

The U.S. economy had expanded at a slower-than-expected pace in fourth quarter 2022, only rising by 2.7 percent compared to 3.2 percent in the third quarter.

For this year, Deutsche Bank is expecting the United States to slip into a recession in the fourth quarter of 2023. Over the course of fourth quarter 2023 to second quarter 2024, the bank expects real GDP to decline by roughly 1.25 percent peak-to-trough.

“Stronger growth momentum, stickier inflation, and a more aggressive Federal Reserve that will need to tighten financial conditions, support our baseline expectation for a moderate recession rather than a soft landing. That said, firmer near-term strength in the U.S. economy suggests that the timing of a recession is likely to be delayed,” the bank said in a note.

The Conference Board Leading Economic Index (LEI) had fallen by 0.3 percent in January for the tenth straight month. This is the longest slump in LEI since the collapse of Lehman Brothers back in 2008.

The group is also expecting the United States to move into a “short and mild” recession sometime early this year. However, the “precise timing” is difficult to calculate, it said.