Consumer Confidence Rises More Than Predicted In November, But An Early Recession Signal Flashes

U.S. consumer confidence managed to rebound more robustly than anticipated in November, hinting at an underlying resilience on the demand side. Beneath the surface, there are lingering concerns that cast a shadow over the nation’s economic outlook.

The widely watched consumer confidence index for the United States surged from a downwardly revised 99.1 in October to a reading of 102 in November, according to the latest data released Tuesday. This surpassed market expectations of a 101.6 reading.

“Consumer confidence increased in November, following three consecutive months of decline,” said Dana Peterson, chief economist at The Conference Board.

This uptick in consumer sentiment provides a positive sign for the economic landscape, especially amid the uncertainty stemming from inflationary pressures and interest rate hikes.

The Present Situation Index, which assesses consumer views of current business and labor market conditions, fell from 138.6 to 138.2. The Expectations Index, which gauges the short-term consumer outlook for income, business and labor market conditions, posted a notable increase. It rose from its downwardly revised reading of 72.7 in October to 77.8.

Lingering Concerns And Generational Divides

Despite the overall improvement in November’s consumer confidence index, a concerning trend is emerging. The Expectations Index remained below 80 for the third consecutive month. Historically, this level has often signaled an impending recession within the next year.

Alarmingly, around two-thirds of consumers surveyed in November still perceive a recession to be “somewhat” or “very likely” to occur over the next 12 months, underscoring the persisting uncertainty in the economic environment.

The surge in consumer confidence in November was primarily concentrated among households aged 55 and older, highlighting generational divides in economic sentiment. In contrast, confidence among householders aged 35-54 saw a slight decline. Average 12-month inflation expectations retreated to 5.7% after a one-month uptick to 5.9%.

This suggests that concerns over rising prices are far from being completely assuaged.

On a somewhat brighter note, consumers’ assessment of the short-term labor market outlook was slightly more optimistic in November. 16.1% of consumers said they expect more jobs to be available, up from 15.3% in October. Additionally, 39.3% of consumers reported that jobs were “plentiful,” a modest increase from 37.9% in October. Yet 15.4% of consumers said jobs are “hard to get,” showing a slight uptick from 14.1%.

Market Reactions

The U.S. dollar index (DXY) saw a marginal 0.1% uptick after the report, offsetting some of its daily losses. Expectations for interest rates remained largely unchanged.

Traders have already factored in the likelihood of interest rates remaining unchanged in December, followed by a series of four anticipated rate cuts in 2024, commencing in May.

Stock markets exhibited limited reactions on Tuesday, as both the SPDR S&P 500 ETF Trust SPY and the Invesco QQQ Trust QQQ edged down by 0.1%.

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