U.S. consumer confidence started to decline again in October, after witnessing two continuous months of strong growth.
High inflation rates, caused by years of low borrowing rates and persistent supply shortages, are beginning to take a toll on American consumers, as the economy is in the midst of a recession.
Inflation started to surge again in October, its first increase since June, due to rises in gas and food prices.
Last month’s Bureau of Labor Statistics report on consumer prices showed a decline in energy costs but that core inflation for food and housing remained high.
“Looking ahead, inflationary pressures will continue to pose strong headwinds to consumer confidence and spending, which could result in a challenging holiday season for retailers,” said Lynn Franco, senior director of economic indicators at The Conference Board.
“Given inventories are already in place, if demand falls short, it may result in steep discounting which would reduce retailers’ profit margins.”
Economic Expectations Tumble in October
The Conference Board’s Present Situation Index fell sharply, plunging from 150.2 in September to 138.9 this month, the lowest level since April 2021.The massive drop suggested that economic growth had already slowed by October, said Franco and that “consumers’ expectations regarding the short-term outlook remained dismal.”
The survey’s measure of future expectations, which reflected consumers’ six-month outlook, slipped from 79.5 last month to 78.1 in October, which is a dire sign.
Franco stated that consumer expectations were “still lingering below a reading of 80—a level associated with recession—suggesting recession risks appear to be rising.”
Despite an increase in negative sentiment, she noted that plans to purchase large items like cars, homes, and major applications all rose, while household vacation intentions declined.
There were also further signs that the steady job market was beginning to cool.
Policy Debates Over Rising Prices and the Midterms
The latest drop in consumer confidence is leading to increased debate over the Federal Reserve’s aggressive inflationary fighting methods.Many investors are concerned that a combination of rising prices and rapid borrowing rate increases will tip the U.S. economy into a serious recession.
Although the official bellwether the National Board of Economic Research has yet to declare an economic recession, two consecutive quarters of negative U.S. GDP growth do fall into the traditional definition of recession.
However, Republicans have called Biden’s decision to release oil from the critically depleted SPR before the midterm elections, a cynical move.
President Biden is currently in a tight situation, as his party attempts to retain control of both houses of Congress, two weeks before the November elections.
Former Democrat Sen. Al Franken of Minnesota said on his show “The Al Franken Podcast” that “Americans are rightly concerned about inflation. Gas prices are trending back up, rent, food, it’s hard to care about anything else when you don’t know if you’re gonna make it month to month or even week to week.”
“The unfortunately named Inflation Reduction Act—unfortunately, mainly because so little of it has kicked in and we are not seeing inflation reduced,” Franken added.
Congressional Republicans have been repeatedly hammering the Biden administration’s economic performance ahead of the midterms.
“Every American needs to be asked this one question: ‘Could you afford to give up one month of your wages?’ Ninety-five percent of Americans will say no. But that’s what the Democrats have taken from you. Because one month of your wages is 8.3 percent of your overall year—inflation is higher than that,” said House Minority Leader Kevin McCarthy (R-Calif.) in a statement.
Meanwhile, the latest Personal Consumption Expenditures index—the main source used by the Fed to review its inflation target—will be released on October 28 with the widely awaited results for September.
