A key indicator of U.S. consumer confidence improved in November, particularly among older people, although concerns about high interest rates and rising prices persisted. The Conference Board reported that its Consumer Confidence Index rose to 102 from a downwardly revised 99.1 in October. The initial reading for that month had been 102.6.
Consumer spending accounts for more than two-thirds of U.S. economic activity. “Consumer confidence increased in November, following three consecutive months of decline,” Dana Peterson, chief economist at The Conference Board, stated in a press release. “This improvement reflected a recovery in the Expectations Index, while the Present Situation Index was largely unchanged.
“November’s increase in consumer confidence was concentrated primarily among householders aged 55 and up; by contrast, confidence among householders aged 35 to 54 declined slightly,” Peterson added. “General improvements were seen across the spectrum of income groups surveyed in November. Nonetheless, write-in responses revealed consumers remain preoccupied with rising prices in general, followed by war/conflicts and higher interest rates.”
Consumer expectations for the next six months recovered in November, reflecting improved confidence about future business conditions, job availability and incomes. Compared with last month, expectations that interest rates would rise in the year ahead ticked down, but consumers’ outlook for stock prices continued to weaken in November.
“Consumers’ views of their expected family financial situation six months [in the future] recovered in November after ticking down for the past two months,” Peterson said. “Buying plans for autos, homes and big-ticket appliances trended downward on a six-month basis — perhaps reflecting the impact of elevated interest rates.”
A separate indicator of consumer sentiment was lower in November. The University of Michigan reported that its Consumer Sentiment Index declined to 61.3 from 63.8 in October. “Consumer sentiment fell a modest 2.5 index points, or 4%, from October,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “While this marks the fourth consecutive month of declines, November’s reading reflects a balance of factors, some of which improved while others worsened.
“More favorable current assessments and expectations of personal finances were offset by a notable deterioration in expected business conditions,” Hsu added. “In particular, long-run business conditions plunged by 15% to its lowest since July 2022. Younger and middle-aged consumers exhibited strong declines in economic attitudes [in November], while sentiment of those age 55 and older improved from October.
“Long-run inflation expectations rose from 3% [in October] to 3.2% [in November], a reading last seen in 2011,” Hsu added. “These expectations have risen in spite of the fact that consumers have taken note of the continued slowdown in inflation; consumers appear worried that the softening of inflation could reverse in the months and years ahead.”
The U.S. Department of Commerce reported that retail sales fell 0.1% in October after rising by a sharp and upwardly revised 0.9% the previous month. Sales dropped less than analysts expected, but the decline was the first in six months. Economists have predicted that sales would slow in the final three months of the year as credit-card debt rises and consumers’ savings decline.
“The consumer spent money like there was no tomorrow in Q3, and the retail sales data for October suggest that they broadly paused at the outset of Q4,” Jefferies U.S. economist Thomas Simons wrote in a research note that Yahoo Finance quoted.
Inflation was flat in October. The U.S. Department of Labor reported that the Consumer Price Index was unchanged for the month but was up 3.2% from the same month a year earlier. The core CPI, which excludes volatile food and energy prices, rose 0.2% for the month and 4% from the same month a year earlier. The annual rate of increase was the smallest since September 2021.
Shelter costs, one component of the index, rose 0.3% in October, equivalent to half of the gain in September. “This is a game-changer,” Paul McCulley, former chief economist at Pimco who is now an adjunct professor at Georgetown University, told CNBC. “We’re having a day of rational exuberance because the data clearly show what we’ve been waiting for for a long time, which is a crack in the shelter component.”
The Conference Board reported that its Leading Economic Index fell by 0.8% in October, to 103.9, after a 0.7% decline the previous month. “The U.S. LEI trajectory remained negative, and its six- and 12-month growth rates also held in negative territory in October,” Justyna Zabinska-La Monica, senior manager, business cycle indicators, at The Conference Board, stated in a press release. “Among the leading indicators, deteriorating consumers’ expectations for business conditions, lower Institute for Supply Management Index of New Orders, falling equities and tighter credit conditions drove the index’s most recent decline.
“After a pause in September, the LEI resumed signaling recession in the near term,” Zabinska-La Monica added. “The Conference Board expects elevated inflation, high interest rates and contracting consumer spending — due to depleting pandemic saving and mandatory student loan repayments — to tip the U.S. economy into a very short recession. We forecast that real GDP will expand by just 0.8% in 2024.”
The mood at the nation’s small businesses darkened slightly in October. The National Federation of Independent Business reported that its Small Business Optimism Index declined by 0.1 points, to 90.7. It was the 22nd consecutive month that the index has been below its 50-year average of 98.
“[October] marks the 50th anniversary of NFIB’s small business economic survey,” NFIB chief economist Bill Dunkelberg stated in a press release. “The October data shows that small businesses are still recovering, and owners are not optimistic about better business conditions. Small-business owners are not growing their inventories as labor and energy costs are not falling, making it a gloomy outlook for the remainder of the year.”
Twenty-two percent of member business owners said inflation was their biggest business problem, down 1% from September. Forty-three percent of owners, seasonally adjusted, reported openings that were hard to fill, matching the figure from the previous month. The NFIB reported that such a rate is historically high. A net 36% of owners, seasonally adjusted, reported raising pay in October, a figure that was unchanged from the previous month.
Confidence among the nation’s home builders worsened in November. The National Association of Home Builders reported that its NAHB/Wells Fargo Housing Market Index fell six points, to 34. It marked the fourth consecutive monthly drop in confidence, and sentiment levels have now declined to their lowest point since December 2022.
“The rise in interest rates since the end of August has dampened builder views of market conditions, as a large number of prospective buyers were priced out of the market,” NAHB chairman Alicia Huey, a custom home builder and developer from Birmingham, Ala., stated in a press release.
“Moreover, higher short-term interest rates have increased the cost of financing for home builders and land developers, adding another headwind for housing supply in a market low on resale inventory,” Huey added. “While the Federal Reserve is fighting inflation, state and local policymakers could also help by reducing the regulatory burdens on the cost of land development and home building, thereby allowing more attainable housing supply to the market.”
NAHB chief economist Robert Dietz added: “While builder sentiment was down again in November, recent macroeconomic data point to improving conditions for home construction in the coming months. In particular, the 10-year Treasury rate moved back to the 4.5% range for the first time since late September, which will help bring mortgage rates close to or below 7.5%. Given the lack of existing home inventory, somewhat lower mortgage rates will price-in housing demand and likely set the stage for improved builder views of market conditions in December.”
All three major HMI component indexes declined in November. The index that gauges current sales conditions fell six points, to 40; the component that charts sales expectations in the next six months dropped five points, to 39; and the gauge that measures the traffic of prospective buyers also declined five points, to 21. Any number above 50 indicates that more builders view conditions as good rather than poor.
The Commerce Department reported that sales of new homes dropped 5.6% in October, to a seasonally adjusted annual rate of 679,000. The government also revised September’s sales lower, to 719,000, from an originally reported 759,000.
“New home sales fell back in October as interest rates moved higher,” the NAHB’s Huey stated in a press release. “Despite the challenging conditions, sales are up 4.6% on a year-to-date basis due to a lack of inventory in the resale market.”
The median new-home sale price was $409,300 in October, down 3.1% from September and down 17.6%, compared with a year earlier. “Median new-home prices have moved lower as new-home size has decreased in 2023,” the NAHB’s Dietz stated. “Combined with sales incentives and a lack of resale inventory, demand has remained solid in 2023 and should improve in 2024 as interest rates move lower.”
Existing-home sales also fell in October. The National Association of Realtors reported that sales declined by 4.1%, to a seasonally adjusted annual rate of 3.79 million. The sales pace was the slowest since August 2010.
“Prospective home buyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation,” NAR chief economist Lawrence Yun stated in a press release. “Multiple offers, however, are still occurring, especially on starter and mid-priced homes, even as price concessions are happening in the upper end of the market.”
The NAR reported that the median existing-home price during October was $391,800, which was up 3.4% from the same month a year earlier.
“While circumstances for buyers remain tight, home sellers have done well as prices continue to rise year-over-year, including a new all-time high for the month of October,” Yun added. “In fact, a typical homeowner has accumulated more than $100,000 in housing wealth over the past three years.”
This article was originally published in the January 2024 issue.
